Spain And Cyprus Request Euro Aid

Cyprus has confirmed it will join Spain in formally applying for a eurozone bailout, just hours after it was downgraded by a credit-rating agency.

In Spain, the country's economy minister Luis de Guindos formally asked for up to 100bn euros in a letter to Eurogroup chairman Jean-Claude Juncker.

The rescue, which was agreed on June 9, is intended to help Spanish lenders recover from the effects of a burst property market bubble and a recession, which have piled up bad loans.

Two independent audits last week put the Spanish banks' capital needs in a stressed scenario at up to 62bn euros.

The final amount of financial assistance will be delivered in September.

The deal was agreed as the European markets closed down, with the Ibex in 3.67% decline during late trading, the CAC 40 off 2.24%, the Dax down 2.09% and the FTSE 100 recording a 1.14% drop.

Mr de Guindos confirmed his intention to sign a memorandum of understanding for the package by July 9 and said the amount should be enough to cover all banks' needs, plus an additional security buffer.

In Cyprus, the government confirmed it required assistance following "negative spillover effects through its financial sector, due to its large exposure in the Greek economy".

The island nation did not say how much it would ask for from the European bailout fund, saying the amount will be subject to negotiations in the coming days.

Meanwhile, Spain's Prime Minister Mariano Rajoy said in a speech to business leaders that the Spanish government will soon take new measures aimed at stimulating economic growth and creating jobs.

He said: "Soon there will be new economic measures with no objective other than (economic) growth and creating employment." 

He gave no details, but also said Spain was fully committed to cutting its public deficit.

At the same time the man who was set to become the next finance minister of Greece has declined the nomination on health grounds.

Vassillis Rapanos - who is the chairman of the National Bank of Greece - was admitted to hospital on Friday after suffering from sever abdominal pains.  

Greece's newly elected Prime Minister, Antonis Samaras, has accepted the resignation. 

The move comes as the country's new coalition try to renegotiate the terms of their multi-billion euro bailout at a two-day European Union summit in Brussels this Thursday.

Finance minister Wolfgang Schaeuble recently told a German TV channel that Ireland and Portugal, which have already received eurozone bailouts, were succeeding in their EU/IMF adjustment programmes, but that Greece had not made a sufficient effort.

Chief European economist at Barclays Capital, Julian Callow, told Jeff Randall Live that there is no short term fix for Europe's financial crisis. 

He said: "The more you look at it the more you realise there is no easy solution and it's not going to be one or two years, it's going to be more a five or ten year time frame and that's a very long time for the financial markets.

"There are a few things on the horizon; I don't think we should give up hope but certainly, right now, it is a very complicated situation."

Top European Union officials have called for the gradual introduction of a banking union, starting with supervisory power for the European Central Bank and developing a deposit guarantee scheme based on pooling national systems, with a levy-funded bank resolution fund.

At the moment the eurozone has two rescue funds to try to contain the crisis, the temporary EFSF and the permanent ESM, due to come into force next month.