Europe to extend Spanish deficit deadline

HONG KONG (MarketWatch) 

Europe went further down the path of providing relief for its struggling members Tuesday, agreeing to an extension of Spain’s budget targets and moving closer to providing financial assistance to Spanish banks

After a nine-hour meeting in Brussels, the Eurogroup released a statement saying that it supported an European Commission decision to extend “the deadline for the correction of the excessive deficit” in Spain by one year, to 2014
A draft set of conclusions released before the conclusion of the first day of the Eurogroup meeting in Brussels said that Spain’s new deficit target for 2012 should be 6.3% of gross domestic product, compared with a prior target of 5.3% of GDP
The 2013 deficit target would be 4.5% of GDP, and the 2014 goal would be 2.8%
In addition, a “political” understanding for recapitalization of the Spanish banking sector via an existing European bailout fund was reached, the Eurogroup said in its statement
Final approval is expected by July 20 “after national procedures have been completed,” according to the statement
Eurogroup chief Jean-Claude Juncker said early Tuesday at a televised news conference that 30 billion euros ($36.9 billion) would be available to assist Spain’s banks by the end of the month
Spain announced in early June that it would seek assistance from the European Union — of up to €100 billion — to shore up its banking sector, hit hard by bad loans that resulted from the collapse of the Spanish housing market
The details announced Monday followed another spike in Spanish bond yields to levels considered dangerous for the country’s ability to finance itself
Last week’s European Central Bank policy meeting saw interest rates cut, but economists widely considered that the central bank could have announced more non-standard measures to support the euro bloc’s economic growth
Investors had been hoping that a European Union leaders summit in late June would provide a turning point for the region
It ended with an agreement to directly recapitalize the region’s banks, should they need it, and announced the introduction of a new financial regulator for the region
The Eurogroup said in its Tuesday statement that it welcomed the European Commission’s intention to present proposals in early September aimed at introducing the new financial supervisory mechanism
“We expect the [European] Council to consider these proposals as a matter of urgency by the end of 2012,” the Eurogroup said
Technical discussions on the process to directly recapitalize the banks via the European Stability Mechanism — which will replace the current bailout fund, the European Financial Stability Facility — will also start in September, the Eurogroup said
Juncker, who is also the prime minister of Luxembourg, also confirmed reports that he had received a mandate for another term as Eurogroup head but said he would decline to stay on past the current year