- Without going through the State and eliminating the burden that this would entail for the State.
- Europe also accepts not to be a preferred creditor in banking support.
- It will facilitate the use of European rescue funds to buy debt from countries under market pressure.
- Rajoy and Monti threatened to veto the pact for growth.
- Merkel: “We remain faithful to the idea of not giving help without asking for something in return.”
- The eurozone agrees the banking and fiscal union.
- Rajoy asks to take into account the Spanish crisis in the distribution of structural funds.
The eurozone has agreed to the charade launched by the Italian and Spanish presidents, Mario Monti and Mariano Rajoy, at the European summit. The two leaders of the countries at risk decided to veto the pact on growth that should be discussed , according to the official agenda, during the first day, while they were not offered short-term solutions for their financing difficulties.
The movement caused the leaders of the eurozone to advance the meeting they planned to hold at the end of the community summit to try to unblock the situation. Finally, the eurozone agreed to several points that until now had been rejected by countries such as Germany, Holland and Finland.
The agreement is summarized in three points: the direct recapitalization of the bank, although only after a common banking supervisor has been created; that the funds of the Eurozone lose the status of preferred creditor and that the European rescue funds will be able to intervene in the sovereign debt markets at risk for some of the members. These three points had been claimed in Europe by the Spanish Government in recent weeks.
Direct recapitalization of banking
One of the points of agreement is the direct recapitalization of the bank , but only after an effective European banking supervisor has been created with the involvement of the European Central Bank (ECB), informed the president of the European Council, Herman Van Rompuy.
To break the vicious circle between banks and sovereign debt
The Heads of State and Government of the Eurozone have also agreed that the European loan of up to 100,000 million euros to recapitalize Spanish banks will be channeled to the Spanish Government through the European Stability Fund (EFSF) and will be transferred to the European Mechanism. of Stability (ESM) when it enters into force under the same conditions, ie without acquiring senior debt status, explained Van Rompuy.
According to the chairman of the Eurogroup working group, Thomas Wieser, when the ESM comes into force, the impact of the loan can be “very quickly removed from the sovereign debt balance sheet”. The eurozone thus accepts the two main requests of the president of the Spanish Government, Mariano Rajoy.
“We urge the rapid conclusion of the memorandum of understanding that will accompany the financial assistance for Spain for the recapitalization of its banking sector and we reaffirm that this aid will be provided by the EFSF until the ESM becomes effective and then it will be transferred to it without acquiring the preferential status , “explained Van Rompuy after the meeting of the 17 leaders of the euro.
Through this procedure, the eurozone will be able to directly recapitalize the bank “as soon as we have an effective European supervisory mechanism and we can change the EFSF to the ESM to break the vicious circle between the banks and the sovereign debt ,” he stressed.
Direct recapitalization means the possibility of using the European rescue fund to recapitalize banks directly, without going through the State and thus eliminating the burden that this would entail for public accounts.
Although this possibility will be accompanied by “very strict conditions , “ said the president of the European Commission, José Manuel Durao Barroso. These conditions will focus on compliance with state aid, individual entities and the financial sector or economic conditions and will be established in a memorandum of understanding, Van Rompuy said.
EU will not be a preferred creditor
The agreement implies the resignation of the eurozone from the status of preferred creditor , a measure that was one of the demands of Spain to reduce the impact of the recapitalization of the bank on the sovereign debt of the country, which has suffered harshly the pressure of the markets in the last weeks.
The preferred creditor status of the ESM meant that the State had to pay its loan before the rest of the public debt it places in the markets.
This circumstance had not been well received by investors, which explained, according to experts, the recent rises in the risk premium on Spanish debt.
Help countries (that meet) in the markets
The members of the eurozone are also committed to doing ” everything necessary ” to help the countries at risk in the markets. It means that the stability funds (both the EFSF and the ESM) flexibly to stabilize the markets. Of course, the document specifies that it will help the “member countries that respect their specific recommendations by country and the other commitments they have made, including their respective schedules.”
A nuance that has cooled the euphoria of the markets and that seems to warn Italy and Germany.
The direct recapitalization of the bank, without going through the State , was something that Spain tried to achieve from the beginning, even before requesting the help of its partners to manage the problems of its banks.
This option is not provided for in the rules of the European rescue funds , but it has been claimed by the European Commission, which tried to include it when those rules were negotiated at the time.
It would allow the State not to be a guarantor of the loans and eliminate the impact on public accounts
The direct recapitalization would allow the State not to appear as guarantor of the loans to the banks and would eliminate the impact of the plan to restructure the banking in the public accounts.
The Eurogroup agreed on June 9 to grant Spain up to 100,000 million euros to solve the problems of its banks through the Fund for Orderly Bank Restructuring (FROB).
However, the formula has not been well received in the markets , where in recent weeks Spain has been forced to pay record interest rates to finance itself.
“It was worth it”
Mario Monti, highlighted after the agreement reached that the negotiation was “hard, but it was worth it”. The meeting was “full of discussions and moments of tension,” he said.
Of the agreed thing, Monti has emphasized to the journalists that Spain can accede to the recapitalizacion to the bank without happening through the national budget. Likewise, the Italian prime minister has indicated that his country has advocated introducing a paragraph in the support agreement of the mechanism to countries that comply with the recommendations, although he has not given more details.
The euro zone has been reinforced “The euro zone has been reinforced, ” Monti has ruled, explaining that the decisions of this morning will be developed and finalized at the meeting of finance ministers of the euro zone on July 9.
Mariano Rajoy limited himself to announcing the existence of an agreement, but did not want to give more details to the journalists.
Merkel: “Our formula has not changed”
For its part, the German Chancellor, Angela Merkel, considered the agreement as “a good result” and a “good basis to continue working.” Even so, he recalled that “our formula has not changed”. “I think we have made some important decisions, but we remain true to our philosophy of not giving help without asking for something in return .”
We remain true to our philosophy of not giving help without asking for something in return. The Eurogroup will also examine the situation of the Irish financial sector in order to further improve the sustainability of the well-functioning adjustment program and similar cases will be “addressed with equality”, said the president of the European Council.
Ireland had asked for conditions similar to those in Spain if they were better than those enjoyed by Dublin.
- Rajoy and Monti
The President of the Spanish Government, Mariano Rajoy, talks with the Prime Minister of Italy, Mario Monti. (Horst Wagner / EFE)
“> Rajoy and Monti
- Agreement of the eurozone