- Associated Press - Tuesday, July 10, 2012

BRUSSELS (AP) — The European Union worked towards stabilizing Spain‘s finances Tuesday as it backed up the blueprint for the country’s 100-billion-euro ($122.52 billion) bank bailout plan with plans to grant the country an extra year to cut its budget deficit.

Finance ministers from the 27 EU countries, meeting in Brussels, approved extending until 2014 Spain‘s deadline for achieving a budget deficit of less than 3 percent of its annual economic output, said Vassos Shiarly, Cypriot finance minister and chairman of the meeting. The size of Spain‘s economy in 2011 is estimated to have been $1.5 trillion.

The move comes on the heels of an overnight meeting at which the 17 eurozone finance ministers agreed on the terms of a bailout for Spain‘s troubled banks, saying that the first 30 billion euros ($36.88 billion) in aid can be ready by the end of this month.

Last month, the eurozone’s finance ministers agreed to offer Spain up to 100 billion euros to prop up its stricken banking sector, which has been weakened by toxic loans and assets from a collapsed property market.

The finance ministers for the 17 countries that use the euro will return to Brussels on July 20 to finalize the agreement, having first obtained the approval of their governments or parliaments, eurozone chief Jean-Claude Juncker said.

Spanish Finance Minister Luis de Guindos said the bank bailout money — however much is ultimately deemed to be necessary — would be disbursed over 18 months.

“As far as cleaning up the Spanish financial sector is concerned, this is going to create profound, important possibilities,” he said. “We have to take full advantage of this over the next 18 months.”

Mr. de Guindos said that only one country — Finland — asked for collateral. “We are working with them on this,” he said.

Spain‘s new budget targets are to have a deficit of 6.3 percent this year, falling safely under the 3 percent ceiling to 2.8 percent in 2014, said Olli Rehn, EU economic and monetary affairs commissioner.

Investors, who had been concerned about the terms of Spain‘s bailout, tentatively welcomed news of the ministers’ decisions. Markets across Europe showed slight gains Tuesday afternoon. In Madrid, the country’s main IBEX index rose 0.83 percent to 6,742.20 while the borrowing cost of its 10-year bond dropped from 7.03 percent Monday to 6.75 percent.

Mr. Juncker added that the Spanish deal will mean that each bank that receives a bailout will be forced to adopt specific conditions and that the supervision of the financial sector overall will be strengthened.

Dutch Finance Minister Jan Kees de Jager said the agreement should be finalized soon.

“We hope this can be wrapped up within a week,” he said.

The exact amount of the bailout likely will not be known until September, when individual examinations of different Spanish banks have been completed.

Spain, the fourth-largest economy in the eurozone, has been struggling to keep a lid on its government deficit in the midst of a recession while trying to support its troubled banking industry. There are fears that should Spain need a bailout of its own, the eurozone would struggle to finance it, pushing the region further into recession.

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