Euro zone agrees to lend Spain up to €100b

BRUSSELS, June 10 — Euro zone finance ministers agreed on Saturday to lend Spain up to 100 billion euros (RM398.25 billion) to shore up its teetering banks and Madrid said it would specify precisely how much it needs once independent audits report in just over a week.

After a 2-1/2-hour conference call of the 17 finance ministers, which several sources described as heated, the Eurogroup and Madrid said the amount of the bailout would be sufficiently large to banish any doubts.

"The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to 100 billion euros in total," a Eurogroup statement said.

Spain said it wanted aid for its banks but would not specify the precise amount until two independent consultancies - Oliver Wyman and Roland Berger - deliver their assessment of the banking sector's capital needs some time before June 21.

"The Spanish government declares its intention to request European financing for the recapitalisation of the Spanish banks that need it," Economy Minister Luis de Guindos told a news conference in Madrid.

He said the amounts needed would be manageable, and that the funds requested would amply cover any needs.

A bailout for Spain's banks, beset by bad debts since a property bubble burst, would make it the fourth country to seek assistance since Europe's debt crisis began.

With the rescue of Greece, Ireland, Portugal and now Spain, the EU and IMF have now committed around 500 billion euros to finance European bailouts.

Washington, which is worried the euro zone crisis could drag the U.S. economy down in an election year, welcomed the announcement.

"These are important for the health of Spain's economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area," Treasury Secretary Timothy Geithner said.

Heated debate

Officials said there had been a heated debate over the International Monetary Fund's role in Spain's bank rescue, which Madrid wanted kept to a minimum. It will not provide any of the money.

In the end it was agreed that the IMF would help monitor reforms in Spain's banking sector, while EU institutions would ensure Spain stuck to its broader economic commitments.

IMF Managing Director Christine Lagarde said the euro zone's plan was consistent with the IMF's estimate of the capital needs of Spain's banks and should provide "assurance that the financing needs of Spain's banking system will be fully met."

Sources involved in the talks said there had also been pressure applied on Madrid to make a precise request right away, but Spain had resisted. Read more

China Makes Surprise 0.25% Interest Rate Cut

China's central bank cut benchmark interest rates by 25 basis points on Thursday in a surprise move to shore up slackening economic growth, its first rate cut since the depths of the 2008-09 financial crisis.

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The new rate of 6.31 percent is effective from June 8, the People's Bank of China (PBOC) said in a brief statement on its website. The PBOC also cut deposit rates by 25 basis points to 3.25 percent.

In the wake of the announcement, U.S. stock futures surged.

"China's move should help support the stocks rally that we have seen in the market over the past days," said Keith Bowman, equity analyst at Hargreaves Lansdown in London.

The consensus view of economists had been that the PBOC would refrain from an outright cut to interest rates in 2012 and instead cut the required reserve ratio (RRR) of the country's banks to boost credit creation and deliver money supply growth in line with the 14 percent official target.

"This is very positive for risk appetite and is indicative PBOC are there to support the Chinese economy. If anything I am surprised the moves so far look quite muted,'' said Michael Sneyd, a currency strategist at BNP Paribas.

"We would expect to see more investors put on risk positions,'' he said. Read more

US Already in 'Recession,' Extend Tax Cuts: Bill Clinton

Former President Bill Clinton told CNBC Tuesday that the US economy already is in a recession and urged Congress to extend all the tax cuts due to expire at the end of the year.

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In a taped interview aired on "Closing Bell," the still-popular 42nd president called the current economic conditions a "recession" and said overzealous Republican plans to cut the deficit threaten to plunge the country further into the debt abyss. Clinton's office released a statementafter the interview.

"What I think we need to do is find some way to avoid the fiscal cliff, to avoid doing anything that would contract the economy now, and then deal with what's necessary in the long term debt-reduction plans as soon as they can, which presumably would be after the election," Clinton said.

"They will probably have to put everything off until early next year," he added. "That's probably the best thing to do right now. But the Republicans don't want to do that unless he agrees to extend the tax cuts permanently, including for upper income people, and I don't think the president should do that."

However, Clinton did say that Congress would be best off agreeing, at least for the time being, to extend all the tax cuts that are set to expire at the end of the year, including the so-called Bush tax cuts named after Clinton's successor, George W. Bush.

Those across-the-board cuts have been criticized by Democrats who say they were skewed toward upper-income earners. Read more