(Source: Alvise Armellini and Alexandra Mayer-Hohdahl dpa, Hamburg, Germany (MCT) — Spain will have to pay about half the current market rate on the eurozone loan it has been promised to help shore up its troubled banking sector, the country’s economy minister said Tueasday.
Eurozone finance ministers have agreed to sign off on the aid package, worth up to 100 billion euros (123 billion dollars), on July 20 and grant Madrid a first installment worth 30 billion euros by the end of the month. At an overnight meeting in Brussels they also agreed to give Spain an extra year to cut its budget deficit.
“I think that the two agreements from yesterday are very positive,” Luis de Guindos said ahead of talks between all 27 European Union finance ministers expected to confirm Tuesday’s decision.
A reporter asked if the interest rate on the eurozone loans, which will have an average maturity of 12.5 years, would be around 3-4 per cent. That is around half the borrowing costs Spain currently faces on 10-year bonds.
“It could be even lower,” de Guindos replied.
In the wake of the deals, yields on Spanish 10-year bonds fell below the critical 7-per-cent mark. For Italy, another euro member under market pressure, they fell under 6 per cent.
The minister also maintained that Spain did not have to pledge any extra commitments in return for the watering down of its deficit targets – despite comments by EU Economy Commissioner Olli Rehn that Madrid should adopt budget plans for 2013-14 by the end of July.
Spain was originally meant to trim its deficit below the EU’s target of 3 per cent of gross domestic product by 2013.
Ministers extended that deadline to 2014, asking Madrid to reduce its budget shortfall to 2.8 per cent that year. For 2012, the target was revised to 6.3 per cent – up from 5.3 per cent – while for 2013 the eurozone settled on 4.5 per cent.
Luxembourg Finance Minister Luc Frieden said it was “not a wrong signal” to give struggling euro members like Spain or Greece more time to fix their finances.
“We have to try to get these countries back on their feet … I think that one more year – especially because we are seeing that the structural reforms have begun in Spain – can be tolerated, but of course it cannot be repeatedly pushed out,” he said.
Dutch Finance Minister Jan Kees de Jager, whose country normally takes a hard line on eurozone matters, said he was “confident” that Madrid would make it, but indicated that it would take some effort.
“Spain is going to implement austerity measures and economic reforms as well as a banking reform very swiftly,” he told reporters. dpa alv amh npr Authors: Alvise Armellini, Alexandra Mayer-Hohdahl
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