After many months of inaction, euro-zone officials seem to have finally woken up to the need for a concerted effort to improve the chances of recovery in the battered single-currency bloc.
Following the agreement this week to ease the burden on Greece, the European Commission yesterday gave the go-ahead for Spain to overhaul its stricken nationalised banks and opened the door for nearly €40 billion (Dh189.53bn) in euro-zone aid to be disbursed, offering hope for an end to Spain's banking crisis.
The lenders Bankia, NCG Banco, Catalunya Caixa and Banco de Valencia will need €37bn to be recapitalised and the banks' bondholders will face losses, said Joaquin Almunia, the EC competition commissioner.
"The approval of the restructuring plans of Bankia, NCG, Catalunya Banc and Banco de Valencia is a milestone in the implementation of the memorandum of understanding between euro-area countries and Spain," Mr Almunia said yesterday.
The approval allows the euro zone to disburse the funds from its permanent European stability mechanism (ESM) bailout fund and could mark a turning point in a banking crisis that has dragged Spain into recession after its property bubble burst. Spain was given approval to receive up to €100bn from the ESM in June.
Yesterday's announcement sets down one of the most far-reaching restructuring plans of any European banking system ordered by the EC since the start of a banking crisis in mid-2007 with the near collapse of the German lender IKB.
"What we've approved today means that the funds for the European stability mechanism can be disbursed," Mr Almunia said. "The total amount adopted today is €37bn." Bankia will get €18bn, Catalunya Caixa is in line for €9bn, NGC Banco receives €5.5bn and €4.5bn goes to Banco de Valencia. The EC said Banco de Valencia would be sold and integrated into Caixa, and the other three banks would need to cut their balance sheets by more than 60 per cent over the next five years.
In what potentially signals thousands of job losses in Spain, Mr Almunia said the nationalised banks would have to close up to half their branches during a five-year overhaul process.
The cost to hybrid and subordinated bondholders will come to about €10bn, he said.
Mr Almunia said he would decide how to deal with other Spanish banks on December 20.