Spain will be given an extra year to get its deficit reduction under control, but markets were not impressed with the action taken by eurozone ministers in a Monday meeting that stretched into Tuesday.
Reuters reported Tuesday that the 9-hour discussion of the terms of a Spanish bailout lasted till the wee hours of Tuesday, with the upshot that Spain will be given a 2013 deadline to reach deficit reduction targets. However, markets were unimpressed, particularly since on Tuesday the German high court would take up a legal challenge to the methods planned for the European Stability Mechanism (ESM) to make it possible to bypass governments and bail out banks directly.
Up to 100 billion euros ($123 billion) in emergency loans will be granted to keep Spain’s banks afloat. The costs may be removed from the Spanish government’s balance sheet so that Spain does not fall victim to the debt crisis like its predecessors Ireland, Portugal and Greece.
In a Bloomberg report, Prime Minister Jean-Claude Juncker of Luxembourg said of the Spanish measures that the first injection of funds will “be mobilized as a contingency in case of urgent needs in the Spanish banking sector.” He added that the planned action “will succeed in addressing the remaining weakness in the Spanish banking sector.”