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Europe won’t obtain the powers to recapitalize banks directly in time for the injection of as much as 100 billion euros ($123 billion) into Spain’s financial system by mid-2013, a European official said.
Spain’s bank-aid program, to be endorsed by European finance ministers next week, will channel the money via a Spanish state agency, the official told reporters in Brussels today on condition of anonymity.
No formal decisions will come at the July 9 meeting, which will also offer a first glimpse of Greece’s plea for a relaxation of its bailout terms and take up Cyprus’s call for banking aid, the official said.
A three-day slump in Spanish and Italian bonds puts euro- area governments under mounting pressure to act, especially after the European Central Bank offered no hint of market-relief measures yesterday.
A delay in the startup of the euro area’s permanent bailout fund -- originally set to be declared operational at the gathering -- caps the rescue firepower at about 240 billion euros for a few more weeks.
Political and legal wrangles in Germany and Italy put off the setup of the 500 billion-euro European Stability Mechanism until at some point in the summer, the official said without pinning down a date.
Direct capital injections by the ESM into banks are unlikely to be authorized before two waves of Spanish recapitalizations are completed by the middle of next year, the official said.
While direct infusions would avoid adding debt to the stressed government’s balance sheet, they won’t be possible until Europe makes good on a June 29 summit pledge to create a single banking supervisor.
An agreement in principle on Spain’s program next week will be followed by the signing of a formal memorandum of understanding by the end of July, the official said. The full cost won’t be known until an assessment of bank-by-bank needs due in September.
Greece’s new government, meanwhile, will test creditor countries’ appetite to ease its bailout conditions when Finance Minister Yannis Stournaras attends his first euro meeting.
Greece has some leeway to shift the composition of taxing and spending to meet its deficit-reduction targets, without renegotiating the targets themselves, the official said.
A four-month policymaking hiatus due to two elections has cost time and Greece can’t count on the next installment from a 240 billion-euro commitment in aid until it proves that its economic-overhaul strategy is back on track, the official said.
Decisions on the next Greek disbursement aren’t likely until August, the official said. The same timeline is likely for Cyprus, which filed for aid after the Greek debt restructuring hammered its banking system, the official added.
Finance ministers are also likely to fill a vacancy on the central bank’s Executive Board, in a contest between Yves Mersch of Luxembourg and Antonio Sainz de Vicuna of Spain, the official said.
Filling the ECB slot, empty since June 1, will make it easier to reach agreement on two other posts, the official said. One is whether to keep Luxembourg Prime Minister Jean-Claude Juncker as chairman of euro finance meetings or appoint a replacement. Juncker’s term expires on July 17.
Also in play is the top job at the ESM permanent bailout fund. Germany has nominated Klaus Regling, head of the temporary fund, to manage the permanent one as well.
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