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Eurozone economy and finance ministers agreed Saturday to provide Spain a loan of up to 100 billion euros ($125.2 billion) to shore up the country's troubled financial sector.
The planned aid package, announced after Spain requested the assistance earlier in the day, will cover "estimated capital requirements with an additional safety margin" and will be paid out of the European Financial Stability Facility and the European Stability Mechanism, the Eurogroup said in a statement.
The ministers, who met Saturday in a video conference, conditioned the aid on "specific reforms" in the financial sector, including "restructuring plans in line with EU state-aid rules and horizontal structural reforms of the domestic financial sector."
The Eurogroup also said it will continue to "closely" monitor Spain's steps to fulfill its commitments to lower its deficit as a percentage of gross domestic product and apply labor and other structural reforms.
"The Eurogroup is confident that Spain will honor its commitments under the excessive deficit procedure and with regard to structural reforms, with a view to correcting macroeconomic imbalances," the statement read.
It added that "progress in these areas will be closely and regularly reviewed also in parallel with the financial assistance."
Spanish Economy Minister Luis de Guindos, who took part in the video conference, said Saturday the assistance would be different from previous external aid packages for eurozone partners Greece, Portugal and Ireland because it will specifically target the banks and not come with new austerity conditions.
In a press conference in Madrid, De Guindos said the "financial assistance has nothing to do with a rescue," describing the aid as "a loan the (Spanish banks) will receive under very favorable conditions to be determined in the coming days" and adding that the package will alleviate market pressure on Spain.
Spain's request for assistance comes less than two weeks after Prime Minister Mariano Rajoy said the Iberian nation would need no external aid to recapitalize its ailing lenders.
"The Eurogroup supports the efforts of the Spanish authorities to resolutely address the restructuring of its financial sector and it welcomes their intention to seek financial assistance from euro area member states to this effect," its statement said.
The countries of the 17-nation eurozone said the amount of the proposed aid package is sufficient to cover "all possible capital requirements estimated by the diagnostic exercise which the Spanish authorities have commissioned to the external evaluators and the international auditors."
They were referring to stress tests of Spain's banks conducted by the International Monetary Fund and two audits by independent consulting firms Oliver Wyman and Roland Berger.
The IMF said in a report issued in the wee hours of Saturday that Spain's bad loan-saddled banks will require between 40-60 billion euros ($50-75 billion) in fresh capital to shore up their books, while the consulting firms are to deliver their findings by June 21.
Fitch Ratings said this week Spanish banks may need up to 100 billion euros in additional capital to cover potential losses on their domestic loan portfolios.
Fitch on Thursday downgraded Spain's sovereign credit rating by three notches to BBB (two notches from junk) with a negative outlook, citing the "high fiscal cost of restructuring and recapitalizing the Spanish banking sector and the likelihood that Spain will remain in recession through 2013."
The Eurogroup said Spain's FROB bank-restructuring fund could receive the aid and channel it to troubled financial entities, but the Spanish government will have "full responsibility of the financial assistance and will sign the MoU" with its eurozone partners.
It said the European Commission, the European Central Bank, the European Banking Authority and the IMF must assess Spain's request for financial assistance and prepare a proposal for the "policy conditionality" accompanying that aid.
Spain would become the fourth - and largest - eurozone country to receive an external aid package since the onset of the European debt crisis, following bailouts for Greece, Ireland and Portugal.
On Thursday, Spain's borrowing costs rose in an auction of benchmark 10-year bonds to above 6 percent, but the sale was considered a success because it dispelled some doubts about the country's ability to tap credit markets.
The yield on Spain's 10-year bond in the secondary market fell after the auction to around 6.1 percent, after having climbed to as high as 6.7 percent on May 30, or near the level at which Greece, Portugal and Ireland required an international bailout.
Spain's banks have been hard hit by the collapse of the country's 1995-2007 real estate boom, which has left them saddled with toxic property assets.
Recently nationalized BFA-Bankia - the country's fourth-largest financial institution - is seeking what would be the largest bank bailout in Spanish history after saying on May 25 it needs another 19 billion euros ($23.5 billion) to boost loss provisions.
The 2008 global financial meltdown came as Spain was struggling with the bursting of the property bubble. The ensuing slump has led to numerous business failures and pushed the country's jobless rate above 24 percent.
Nearly half of Spaniards under 25 are jobless and tens of thousands of families have been evicted from their homes after falling behind on their mortgages. EFE