Spain has received a lifeline from Europe as the direct recapitalisation of it’s banking sector was approved in the final hours of a long summit in Brussels.
German Chancellor Angela Merkel appeared to yield on tough reforms in exchange for rescue money after saying earlier that her country would not put up any more cash.
The European Council president, Herman Van Rompuy, said the decision was a “breakthrough that banks can be recapitalised directly”.
Spain had requested that any bailout be directed to the banks as it did not want to increase the government debt, and this decision appears to be exactly what they wanted.
The new agreement makes it clear that the EU’s existing bailout fund will put up the money until the new fund, the European Stabilisation Mechanism (ESM), becomes operational.
Eurozone leaders agreed to begin implementing the rescue plan by 9 July but warned that it could be the end of the year before the money become available.
Spanish newspaper El Pais reported that Mariano Rajoy didn’t want to comment on the agreement when he left but he was visibly satisfied. Italian PM Mario Monti recognised that the discussion had been “hard and full of moments of tension”, but that it had been worth it also adding that Italy did not intend to apply for a bailout.
German chancellor, Angela Merkel, said she was “very satisfied that we took good decisions on growth”.
The 17 leaders of the eurozone also agreed to a joint banking supervisory body and the full 27-member European Union agreed to a general long-term plan for tighter budgetary regulations and political union.