FT Alphaville " Spain brimming with Eurogroup win? The Eurogroup finance ministers have inched things forward with their long Monday summit, but the press conference in the early hours of this morning also reaffirmed that many big questions remain. The first headline is that Spain gets an extra year to meet its 3 per cent deficit-to-GDP ratio target. Just as well, because the country was extremely unlikely to hit that by the end of next year. The Journal reports that a draft statement says this means Spain can now run a 6.3 per cent deficit this year without risking penalties, compared with 5.3 per cent under the 2013 target. However Societe Generale's James Nixon writes: "The move hardly offers Spain a reprieve; the same painful and sizeable adjustment will now be spread over three years instead of two." The next big point is that €30bn in loans will be made available to recapitalise Spanish banks later this month. The money will initially be provided to Spain's bank regulator, Frob, but once the new eurozone banking supervisor is all worked out, it will take the form of a direct cash injection via the EFSF-slash-ESM. "Then, there will be no sovereign guarantee required," Thomas Weiser said at the press conference. Right? Ummm... no. From the FT's Peter Spiegel: That new banking supervisor is expected to be up and running by the end of the year (though the details are a big source of confusion). How much recapitalising will happen before then, and what will the status of that be, relative to future recapitalisations? What if the total requirements of Spain's banks exceed the 100bn amount agreed by the eurozone? It all ties into the seniority question. The eurogroup statement released last night seems clear (0ur emphasis): Take that, Finland and the Netherlands! But... hang on now. Even when the eurozone-wide banking supervisor is all agreed and ready to go, will the recaps made after that point really not add to sovereign risk? German finance minister Wolfgang Schauble doesn't think so. He also made a statement in the early hours of this morning. From the WSJ: "We expect that the final liability of the state will remain" even once the banking supervisor is up and running, he told journalists. He added that what mattered was that the bank support wouldn't add to a country's debt - something that he said would be possible even under a scenario where the government retained liability for potential losses. Finally, on sovereign bond market purchases, little has changed although some technicalities were clarified. This is what Hans Regling said: I signed an agreement with the president of the ECB according to which the ECB will act as faciliation for the EFSF as proposed by the euro area summit. This is for secondary market operations. The ECB will be able to intevene in the bond market for and on behalf of the EFSF. The ECB's balance sheet will not be affected... it will be on EFSF balance sheet. So the potential is there, it's just whether/when/how much it's used. Same old... Related links: Details of Spanish bail-out still unclear - FT Seniority in Spain, encore - FT Alphaville Some EU deal pessimism - FT Alphaville This entry was posted by Kate Mackenzie on Tuesday, July 10th, 2012 at 8:30 and is filed under Capital markets. Tagged with bank recapitalisation, EFSF, ESM, Jean-Claude Juncker, Klaus Regling, Spain, spanish banks, wolfgang schauble.