Billions are to be used to stabilize the Spanish financial sector and to win more time for Madrid to gain trust on the market. But many in Brussels are warning against rushed optimism.
EU finance ministers have sent a clear signal backing Spain. After the Eurogroup decision the day before, EU finance ministers from all 27 member states on Tuesday gave the green light to help Spain.
The country's debt ridden banks are to receive some 100 billion euros ($123 billion) while Madrid will have until 2014 to get its budget deficit below three percent - one year longer than initially planned.
Spanish Finance Minister Luis de Guindos described the agreement as "really positive," adding that he was happy the one extra year for getting the budget in order had been granted "without further conditions."
He said that "Spain will fulfill its obligations" regarding the agreement. And even the usually rather skeptical Dutch Finance Minister Jan Kees de Jager expressed his confidence saying: "we are confident that Spain will do everything that's necessary to get over this crisis."
Greece not out of the woods yet
The finance ministers though seemed somewhat less certain about what is happening in Greece at the moment. The new government in Athens is trying its best to loosen the strict conditions of the bailout package.
Greece is believed to be far behind on its schedule of reforms and cuts. Austrian Finance Minister Maria Fekter came out strongest in Brussels to criticize the lack of progress in the country. Yet, she too wants to first wait for answers on the question as to "what had been delayed by the election campaigns and where Greece will have to make some adjustments. You can't make rush judgments here, but have to evaluate the facts first." She added that the EU was still behind the Greece bailout.
Breaking the vicious circle
Several of the ministers have pushed for a more speedy assistance for the Spanish banks. But before the European Stability Mechanism (ESM) rescue fund will be able to help the banks directly, there would likely have to be common European banking supervision. This, after all, was one of the agreements at the EU summit in late June.
German Finance Minister Wolfgang Schäuble on Monday night had warned not to question that agreement already. One thing was to simply stick to the rules, Schäuble pointed out, but also "one has to make sure that we don't create expectations higher than we will be able to fulfill. This always is bad for the markets."
EU commissioner for Economic and Monetary Affairs Olli Rehn has his hopes set on the future possibility for the ESM to directly bail out banks - without the detour of helping states that then in turn help their banks. This could "break the vicious circle of banks debts and governments’ debts and take some of the pressure off from the eurozone member states."
More disagreement between Berlin and Brussels
The plans for the banking supervision show that Europe can act very swiftly. EU Commissioner for Internal Markets and Services Michel Barnier wants to present the first concept already early September although at the June summit he initially had asked for more time as there still were too many open questions. But one question he has already answered for himself: There is to be a more long-term and jointly guaranteed deposit protection.
"It is my conviction that this step is necessary for the 27 EU members and that it is indispensable for the 17 eurozone countries," Barnier said.
It is a view though that puts Barnier on a collision course with many German politicians who are concerned that Germans will not like seeing their savings used as guarantees for the debts of foreign banks. Barnier will have to withstand hefty opposition from Berlin if he hopes to push his plans through.
Author: Christoph Hasselbach, Brussels / ai
Editor: Richard Connor