The eurozone crisis is far from over, and the European Commission tried to help faltering Spain today on two fronts: by allowing the EU member more time to cut its budget deficit, and by tapping a eurozone rescue fund to recapitalize distressed banks. More from Reuters:
Spanish government borrowing costs lurched higher and the Madrid stock market hit a nine-year low with investors rattled by the parlous state of its banking sector fleeing to the relative haven of German bonds.
EU Economic and Monetary Affairs Commissioner Olli Rehn said Brussels was ready to give Spain an extra year until 2014 to bring its deficit down to the EU limit of 3 percent of gross domestic product if Madrid presents a solid two-year budget plan for 2013-14, something it has committed to do.
The concession, which Madrid has not publicly requested, was on condition that Spain effectively reins in overspending by its autonomous regions, makes further financial sector reforms and recapitalizes its troubled banks.
While the Commission is responsible for proposing laws, it is member states that decide whether to adopt them.
EU paymaster Germany has so far firmly opposed any collective European banking resolution and guarantee system or any use of bailout funds without a country having to submit to a politically humiliating EU/IMF austerity program.
Rehn said there were no grounds for giving Italy a similar extension to balance its budget, due in 2013, since unlike Spain its economy is forecast to start growing again next year.
Spain is suffering from a burst housing bubble couple with the lingering sting of global recession.
(Photo by Antoine Antoniol/Getty Images)