MADRID -- Eurozone finance ministers on Friday finalized the terms of a bailout for Spanish banks of as much as $122 billion, but the agreement did little to calm markets.
Spain's borrowing costs broke another euro-era record after deeply indebted Valencia on Friday became the first Spanish province to ask the central government for a rescue of its own. The Spanish stock market plummeted and the euro lost value.
The bank bailout was first put together last month by Eurozone leaders worried about the Spanish financial system, which is weighed down by billions of dollars in bad loans from a burst real estate bubble.
"Providing a loan to Spain for the purpose of the recapitalization of financial institutions is warranted to safeguard financial stability in the euro area as a whole," Eurozone finance ministers said after a midday conference call. The zone includes the 17 European Union nations that use the euro currency.
The financial ministers said the Spanish government would retain "full responsibility" for the loan, a statement that appears to address an ongoing tussle between Spain and Germany, Europe's paymaster, over whether Madrid would remain on the hook for the loans if the banks cannot pay back the money themselves.
The exact amount of the bank bailout won't be known until September, but about $37 billion has been set aside for early and urgent requests, the ministers said. As a condition of the rescue program, European Union officials will supervise an overhaul of Spain's banking system.
On Thursday, Spanish lawmakers approved a nearly $80-billion package of spending cuts and tax hikes that represent the biggest dose of fiscal austerity in the country's democratic history. Madrid is struggling to get its deficit down within Europe's legal limits, but rising debts of regional governments such as Valencia complicate those efforts, as do borrowing costs that have reached what some economists say are unsustainably high levels.
The new austerity package sent hundreds of thousands of protesters into the streets all week, culminating in huge rallies Thursday night and early Friday. In Madrid, demonstrators set fires and police fired rubber bullets to disperse the crowd. Dozens were injured.
-- Lauren Frayer
Photo: Riot police scuffle with protesters Thursday in Zaragoza, Spain. Credit: Javier Cebollada / European Pressphoto Agency.