BRUS­SELS-The Eu­ro­pean Union worked to­wards sta­bil­is­ing Spain's fi­nances yes­ter­day as it backed up the blue­print for the coun­try's &eu­ro;100 bil­lion bank bailout plan with plans to grant the coun­try an ex­tra year to cut its bud­get deficit. Fi­nance min­is­ters from the 27 EU coun­tries, meet­ing in Brus­sels, ap­proved ex­tend­ing Spain's dead­line for achiev­ing a bud­get deficit of less than three per cent of its an­nu­al eco­nom­ic out­put, un­til 2014, said Vas­sos Shiar­ly, Cyprus' fi­nance min­is­ter and chair of the meet­ing. The size of Spain's econ­o­my in 2011 is es­ti­mat­ed to have been US$1.5 tril­lion.

The move comes on the heels of an overnight meet­ing at which the 17 eu­ro area fi­nance min­is­ters agreed on the terms of a bailout for Spain's trou­bled banks, say­ing that the first &eu­ro;30 bil­lion (US$36.88 bil­lion) in aid can be ready by the end of this month. Last month, the eu­ro­zone's fi­nance min­is­ters agreed to of­fer Spain up to &eu­ro;100 bil­lion to prop up its strick­en bank­ing sec­tor, which has been weak­ened by tox­ic loans and as­sets from a col­lapsed prop­er­ty mar­ket.

The fi­nance min­is­ters for the 17 coun­tries that use the eu­ro will re­turn to Brus­sels on Ju­ly 20 to fi­nalise the agree­ment, hav­ing first ob­tained the ap­proval of their gov­ern­ments or par­lia­ments, eu­ro­zone chief Jean-Claude Junck­er said. Span­ish Fi­nance Min­is­ter Luis de Guin­dos said the bank bailout mon­ey, how­ev­er much is ul­ti­mate­ly deemed to be nec­es­sary, would be dis­bursed over 18 months.

"As far as clean­ing up the Span­ish fi­nan­cial sec­tor is con­cerned, this is go­ing to cre­ate pro­found, im­por­tant pos­si­bil­i­ties," he said. "We have to take full ad­van­tage of this over the next 18 months." De Guin­dos said that on­ly one coun­try - Fin­land - asked for col­lat­er­al. "We are work­ing with them on this," he said.

Spain's new bud­get tar­gets are to have a deficit of 6.3 per cent this year, falling safe­ly un­der the three per cent ceil­ing to 2.8 per cent in 2014, said EU Eco­nom­ic and Mon­e­tary Af­fairs Com­mis­sion­er Ol­li Rehn. In­vestors, who had been con­cerned about the terms of Spain's bailout, ten­ta­tive­ly wel­comed news of the min­is­ters' de­ci­sions. Mar­kets across Eu­rope showed slight gains yes­ter­day af­ter­noon.

In Madrid, the coun­try's main IBEX in­dex rose 0.83 per cent to 6,742.20 while the bor­row­ing cost of its ten-year bond dropped from 7.03 per cent Mon­day to 6.75 per cent. Junck­er added that the Span­ish deal will mean that each bank that re­ceives a bailout will be forced to adopt spe­cif­ic con­di­tions, and the su­per­vi­sion of the fi­nan­cial sec­tor over­all will be strength­ened.

Dutch Fi­nance Min­is­ter Jan Kees de Jager said the agree­ment should be fi­nal­ized soon. "We hope this can be wrapped up with­in a week," he said. The ex­act amount of the bailout will like­ly not be known un­til Sep­tem­ber, when in­di­vid­ual ex­am­i­na­tions of dif­fer­ent Span­ish banks have been com­plet­ed.

Spain, the fourth-largest econ­o­my in the eu­ro­zone, has been strug­gling to keep a lid on its gov­ern­ment deficit in the midst of a re­ces­sion while try­ing to sup­port its trou­bled bank­ing in­dus­try. There are fears that should Spain need a bailout of its own, the eu­ro­zone would strug­gle to fi­nance it, push­ing the re­gion fur­ther in­to re­ces­sion.

De Jager said Madrid's part­ners agree that "fi­nan­cial sec­tor re­forms in Spain must be ruth­less­ly im­ple­ment­ed". How­ev­er, he said a sys­tem of EU-wide bank­ing su­per­vi­sion still need­ed to be worked out. But on Mon­day, be­fore the eu­rogroup meet­ing be­gan, Mario Draghi, the chief of the Eu­ro­pean Cen­tral Bank, said he was con­fi­dent that a bank­ing union in the Eu­ro­pean Union would be achieved.

"We are talk­ing about the long-term sus­tain­abil­i­ty of the Eu­ro­pean mon­e­tary union. We are go­ing as fast as we can. It is bet­ter to do things right than in a hur­ried fash­ion," Draghi told a com­mit­tee of the Eu­ro­pean Par­lia­ment. Rehn said the Eu­ro­pean Com­mis­sion would put for­ward leg­isla­tive pro­pos­als for the cre­ation of a "Sin­gle Su­per­vi­so­ry Mech­a­nism" for banks in the eu­ro area, in­volv­ing the Eu­ro­pean Cen­tral Bank, in ear­ly Sep­tem­ber. The cre­ation of the cen­tral bank su­per­vi­sion will al­low the EU's fire­wall fund to re­cap­i­talise banks di­rect­ly rather than lend­ing the mon­ey to a coun­try's gov­ern­ment, some­thing that in­creas­es the coun­try's debt load.

Irish Fi­nance Min­is­ter Michael Noo­nan said it was about time. "It was the cri­sis in Spain that even­tu­al­ly con­vinced the Eu­ro­pean au­thor­i­ties to do what Ire­land has been ar­gu­ing should be done for a long time, sep­a­rate the sov­er­eign debt from bank­ing debt," Noo­nan said.

Mean­while, Greece's new fi­nance min­is­ter, Ioan­nis Stournaras, said his coun­try would work to get its bud­get-bal­anc­ing pro­gram back on track, but Greece too will need ex­tra time to meet its tar­gets. "I think the size of the re­ces­sion jus­ti­fies, as Spain got an ex­ten­sion, that we should ask for an ex­ten­sion," Stournaras said. He said he recog­nised it was still too ear­ly to ex­pect a for­mal de­ci­sion on the is­sue.

Min­is­ters added that the fi­nal de­ci­sion on Greece's re­quest to rene­go­ti­ate the terms of the coun­try's bailout agree­ments will de­pend on the con­clu­sions of the so-called "troi­ka" of debt in­spec­tors cur­rent­ly over­see­ing the Greek pro­gramme. Rehn said a mis­sion from the troi­ka would go to Greece with­in the next two weeks to as­sess the coun­try's short-term fi­nanc­ing needs.

"I am sure we will find a so­lu­tion to this prob­lem," Rehn said. Greece has had to im­pose harsh aus­ter­i­ty mea­sures, in­clud­ing big cuts to pen­sions and salaries, to se­cure bil­lions of eu­ros worth of res­cue loans from the IMF and oth­er Eu­ro­pean coun­tries that use the eu­ro and avoid bank­rupt­cy. The fi­nance min­is­ters al­so re­elect­ed Junck­er to a new 2 1/2 -year term as pres­i­dent of the eu­rogroup. But Junck­er said he would step down late this year or ear­ly next year. (AP)