MADRID – Spain's Prime Minister Mariano Rajoy hailed an accord Friday that allows the euro countries to bail out banks directly rather than via debt-laden governments as a road map toward shoring up the 17-nation eurozone after more than two years of crisis.
Investors seemed to like the summit results and Madrid's main stock market was trading 4 percent higher.
And perhaps more importantly, the yield on Spain's 10-year bonds — a direct measure of investor wariness of a country's finances — dropped 41 basis points to 6.48 percent. Seven percent is seen as unsustainable over the long term.
Speaking in Brussels after the EU summit, Rajoy said the meeting "set out the correct path for confronting the crisis and marked out a road map."
He cautioned, however that there's "a long way to go."
Spain was a key focus of the summit because its banks, weighed down by billions in sour real estate assets, need a huge bailout. The eurozone countries have offered a loan of up to €100 billion ($126.8 billion), although Spain has yet to say how much it will request.
The offer backfired as investors worried that the loans would add to the government's debt load and debt financing costs. That further spooked investors from buying Spanish bonds, which raised the government's borrowing costs.
That may all change if the summit proposals are put into practice. The leaders agreed that the EU's soon-to-be-formalized permanent bailout fund can pump money directly into the banks, getting the government off the hook in case of default. In essence, the European Central Bank will become the overseer of Spanish banks and those of other EU countries.
Rajoy said the 27 countries of the EU went into the summit facing challenges to boost growth and employment, stabilize financial markets and achieve greater political integration, and achieved all three fundamental goals.
"I think our response has been loud and clear," Rajoy said. "I think this summit sent an unequivocal political signal in defense of the euro."
Rajoy refused to comment on suggestions that Spain, Italy and France stood up to austerity-minded Germany to settle volatile debt markets. Rajoy said: "the important thing is that we reached an agreement to strengthen the position of the euro. The rest are just minor details."
A July 9 meeting of finance ministers is expected to yield key details of the bailout of the Spanish banks, such as the size of the loan, interest rate and repayment schedule.
Alejandro Varela, an analyst with Madrid brokerage Renta4, said the markets seem happy for now because the prospect of a full-blown bailout of Spain has eased. But investors are hungry for details.
"In the end, it is this kind of fine print that the market needs to know," Varela said.
Ciaran Giles contributed to this report.