The euro area finance ministers (the Eurogroup), meeting on 9 July in Brussels, reached a political understanding on the programme designed to help Spain recapitalise and restructure its financial institutions. The final approval of this Memorandum of Understanding is expected by 20 July, following national parliamentary procedures.
"The key component of the programme is an overhaul of the weak segments of the Spanish financial sector," said Jean-Claude Juncker, Luxembourg Prime Minister and President of the Eurogroup.
The programme's conditions include specific requirements for the banks that are unable to meet their capital shortfall without public support, and strengthening of Spain's financial and regulatory framework.
"We are convinced that this conditionality will succeed in addressing the remaining weakness in the Spanish banking sector", said Mr Juncker.
In addition, ministers endorsed the Commission's proposal to extend the deadline for the correction of the excessive deficit in Spain by one year, i.e. to 2014.
"We expect Spain to take all necessary measures to meet the new 2014 deadline", said Mr Juncker. The change of date will be formally adopted by the Economic and Financial Affairs Council on 10 July.
Once the Memorandum of Understanding is adopted, it will allow the first disbursement – of 30 billion euro – by the end of July, "to be mobilised as a contingency in case of urgent needs in the Spanish banking sector", said Mr Juncker.
The exact capital shortfalls and the need for public support will be established after the stress tests of the banks in question have been concluded.
The financial assistance for recapitalisation, which will then come in several tranches, will be provided via the European Financial Stability Facility (EFSF) until the European Stability Mechanism (ESM) becomes available and takes over this task.
EFSF and ESM
Klaus Regling, the chief executive officer of the EFSF, reported that almost all the technical preparations for the ESM have been finalised, so that it will be able to start work once the ESM Treaty is ratified and its governing bodies are established.
In future the ESM will have the possibility of recapitalising banks directly, without government guarantees, but only when the effective supervisory mechanism for the euro area banks, involving the ECB (European Central Bank), is in place and running.
The Commission intends to present the proposal on the single supervisory mechanism in early September.
In addition, the ECB and the EFSF signed a technical agency agreement. "The ECB will be able to intervene in bond markets for and on behalf of the EFSF. Consequently, the ECB 's balance sheet will not be affected, and all the financial risks and benefits in relation to this will be on the EFSF's balance sheet", said Mr Regling.
The ECB will sign a similar agreement with the ESM when the latter becomes operational.
The Eurogroup re-elected Mr Juncker as its President and agreed to recommend to the Council that it in turn recommend that the European Council appoint Yves Mersch, the Governor of Luxembourg's Central Bank, as a member of the ECB Executive Board.
Klaus Regling, who currently leads the EFSF, was agreed as a candidate for the position of the managing director of the ESM. He will be appointed to this position by the ESM's Board of Governors.
The next two Eurogroup meetings are expected to take place in July and in September.
Eurogroup statement (pdf)
Press conference (video)