Friday

29th Mar 2024

Italy and Spain get 'breakthrough' deal on bailout funds

Eurozone leaders in the early hours of Friday morning (29 June) agreed to allow bailout funds to recapitalise banks directly and to buy bonds for "well-behaving" countries - states which are pursuing reforms but suffering from market pressure.

The deal is designed to help Spain and Italy to lower their borrowing costs, but might take several months to implement.

Read and decide

Join EUobserver today

Get the EU news that really matters

Instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

"We agreed on something new, which is a breakthrough, that banks can be directly recapitalised in certain circumstances... and we are opening the possibility for well-behaving countries to use the EFSF/ESM [bailout funds] to reassure markets and get some stability around their sovereign bonds," EU council chief Herman Van Rompuy said in a press conference at the end of the marathon meeting.

Italy and Spain had earlier filibustered a non-controversial EU "growth pact" worth €130 billion in order to achieve concessions on their immediate concerns: their high borrowing costs.

Germany insisted that the concessions only be made if proper controls are in place, however.

Spain got its long-standing demand of letting banks be directly recapitalised by the eurozone bailout funds, but only once "an effective single supervisory mechanism is established, involving the European Central Bank."

This "will not happen in a few days or weeks, but in the medium term it will achieve the desired effect," said Thomas Wieser, head of the Eurogroup working group of finance ministry officials in the eurozone.

He explained that Spain will have to abide by the current rules for now, which adds the upcoming €100 billion bailout for its banks onto government debt.

Once the new supervisory body is established, the bailout will be "transferred to the new mechanism, so that it can rapidly be taken off Spain's balance sheet," Wieser said.

Madrid also got a concession on the so-called preferred creditor status for the permanent eurozone bailout fund.

Euro leaders decided that the bailout for the Spanish banks will not have such "seniority" - meaning that the permanent European Stability Mechanism will not have any priority compared to other investors in case of default.

For his part, Italian Prime Minister Mario Monti also made some headway in his call for a "semi-automatic" mechanism so that the bailout funds buy government bonds when countries are under market pressure, but without trigerring a bailout procedure, as the rules currently stipulate.

Speaking on his way out of the summit, he said he was pleased the impasse had been overcome.

"There were a lot of discussions, some tension, but we made progress. At our request, we obtained a stabilisation mechanism for countries that are perfoming well under the Stability and Growth Pact, but are still under market pressure, like Italy," he said.

Under this new mechanism, countries would sign a memorandum of understanding about continuing the reforms they are already implementing, but "there would be no troika," Monti explained, in reference to the special monitors from the EU, the International Monetary Fund and the European Central Bank that go every three months to bailed-out countries such as Greece or Portugal.

Van Rompuy also confirmed that the conditions attached to this "flexible" mechanism would reproduce the requirements of the eurozone's beefed up economic surveillance - on budget deficits and macro-economic imbalances.

"There may be just a timeline added to the memorandum, to put some pressure, but the requirements would be the same as the country-specific recommendations," he said, in reference to EU commission-issued reports for each country on where their economy stands compared to the EU rules.

As for the long-term plan for the eurozone, the EU council chief will go back to the drawing board together with the heads of other EU institutions and come back with a "specific timelined roadmap" by October on the banking union, on more sovereignty being ceded to Brussels and on seeking ways to increase "democratic legitimacy and accountability."

Unlike his first report discussed that night and for which there was "no agreement" on substance - Germany opposed the perspective of mutualised debt - the next one will be done "in close co-operation" with member states and also in consultation with the European Parliament, he said.

Eurozone hawks deal blow to bank bailout plans

EU officials are in damage control mode after Germany, Finland and the Netherlands said the eurozone's new bailout fund should not take on old debt from bad banks.

Italy debt rating downgraded

US ratings agency Moody's has cut Italy's debt rating by two notches citing a contagion risk from Spain and Greece as the eurozone crisis continues to rage.

Merkel faces coalition troubles over euro-bailouts

Bavaria's conservative leader Horst Seehofer has threatened to withdraw support for German Chancellor Angela Merkel's coalition if more concessions are made to ailing euro-countries. He also ruled out changes to the constitution.

Opinion

EU Modernisation Fund: an open door for fossil gas in Romania

Among the largest sources of financing for energy transition of central and eastern European countries, the €60bn Modernisation Fund remains far from the public eye. And perhaps that's one reason it is often used for financing fossil gas projects.

Latest News

  1. Kenyan traders react angrily to proposed EU clothes ban
  2. Lawyer suing Frontex takes aim at 'antagonistic' judges
  3. Orban's Fidesz faces low-polling jitters ahead of EU election
  4. German bank freezes account of Jewish peace group
  5. EU Modernisation Fund: an open door for fossil gas in Romania
  6. 'Swiftly dial back' interest rates, ECB told
  7. Moscow's terror attack, security and Gaza
  8. Why UK-EU defence and security deal may be difficult

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Stakeholders' Highlights

  1. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  2. UNOPSFostering health system resilience in fragile and conflict-affected countries
  3. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  4. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  5. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  6. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA

Join EUobserver

EU news that matters

Join us