Struggling Spain gained a brief respite from turbulent debt markets today as
the eurozone's finance ministers agreed to pump euro 30 billion (pounds
sterling 23.8 billion) into its beleaguered banks by the end of the month.
The first tranche in a bailout set to hit euro 100 billion came as the eurogroup also gave Spain an extra year to cut its deficit to 3 percent, in a deal agreed in the early hours of this morning.
The nation's benchmark, 10-year debt costs, which have soared to an unsustainable 7 percent in recent days, eased back today to 6.8 percent _ although this is still uncomfortably high for Madrid to tap debt markets.
Italy _ also under pressure from international investors _ saw borrowing costs ease back below 6 percent.
Spain's banks _ laid low by hundreds of billions in bad property loans _ are seen as a key risk to the single-currency bloc. But the funds will only come in return for swingeing reforms of its financial sector including a crackdown on bonuses.
Dutch finance minister Jan Kees de Jager said: "Financial sector reforms in Spain must be ruthlessly implemented. These reforms include, notably, a cap on salaries of bank executives and a ban on bonuses."
Progress towards an EU-wide system of banking supervision is slower, although De Jager added that details would be worked out by the end of the year.
Meanwhile, technical discussions on using the euro 500 billion European stability mechanism to prop up banks directly are not due to begin until September.
Barclays Capital analyst Antonio Garcia Pascual said: "The lack of clarity in the eurogroup statement on this issue likely reflects different views among euro area finance ministers."
Despite the better news for Spain from the eurogroup, the single currency neared two-year lows against the dollar as more evidence of a slowing Chinese economy emerged in weak trade figures.
France's industrial sector slumped 1.9 percent in May, while analysts warned that Italy could be stuck in recession until the beginning of next year, despite a surprise 0.8 percent bounce in industrial production.
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