“We have formally approved the memorandum that lays out the conditions under which Spain can be lent money for the recapitalisation of its banks,” Frieden said, according to Reuters.

In a conference call, ministers voted on a detailed memorandum of understanding with Spain spelling out the terms of the aid, which will be fully disbursed by the end of 2013, Reuters writes.

The full amount of money needed to shore up Spain’s banks will not be known until September, after individual banks have been assessed. The agreement calls for an initial disbursement of €30 billion ($36.9 billion) this month.

“The aim of this program is very clear: to provide Spain with healthy, effectively regulated and rigorously supervised banks, capable of nurturing sustainable economic growth,” Olli Rehn, the European monetary affairs commissioner said in a statement, according to AP.

But interest rates on Spanish debt continued to rise, suggesting financial markets are pessimistic about the country’s future, the Financial Times reported.

Parliament approved on Thursday a package of 65 billion euro ($80 billion) spending cuts and tax hikes which are likely to deepen the recession already gripping Spain.

The bailout memorandum of understanding follows Germany’s approval Thursday of the deal, which includes 3 percent interest for 15 years and a 10-year grace period.

The austerity vote prompted hundreds of thousands of Spaniards, led by public-sector workers, in more than 80 cities to take to the streets on Thursday, protesting Rajoy’s government.

Eurozone finance ministers agreed Tuesday to offer Spain 30 billion euros by the end of the month to help its troubled banks.

After nine hours of ministerial talks, Jean-Claude Juncker, the Luxembourg premier who also heads the Eurogroup , said a memorandum of understanding for Spain would be formally signed “in the second half of July,” with 30 billion euros ($37 billion) available by the end of the month.

The 27 ministers also agreed to extend a deadline for Spain to cut its public deficit to the EU 3.0 percent limit by one year to 2014 because of the difficult economic conditions Spain faces but underlined that Madrid must implement all the measures needed to bring its public finances in line with EU norms.

European economic affairs commissioner Olli Rehn insisted that Spain will have to meet all the obligations under the EU’s excessive deficit procedures.

Olli Rehn said Spain’s public deficit was now expected at 6.3 percent of Gross Domestic Product this year, 4.5 percent in 2013 and then 2.8 percent in 2014, according to AP. 

Spain in May revised its 2011 public deficit figure, saying that it stood at 8.9 percent, up from 8.51 percent reported earlier and way above the original 6.0 percent target for the year, according to AP.

The same month, the EU warned that Spain would miss its public deficit targets this year and next while remaining in recession through 2013.

The conservative government of Prime Minister Mariano Rajoy has pledged to cut Spain’s public deficit to 5.3 per cent this year.

Juncker and Rehn said the meeting had also discussed the situation in Greece, specifically about its newly elected government has planned, and had also reviewed the position in Cyprus, which has just asked for EU aid.

Spanish bank shares leapt almost six per cent on Monday morning on their first day of trade following the deal to recapitalise the country’s struggling lenders, with Madrid’s IBEX 35 benchmark index rising to 6,929.9 points in early morning trading, Al Jazeera reported.

London’s FTSE 100 index jumped 1.80 per cent to 5,532.92 points, Frankfurt’s DAX 30 rose 2.04 per cent to 6,255.65 points and in Paris the CAC 40 rose 1.98 per cent to 3,110.96 points as investors jumped into financial shares in the opening deals.

The move came after weeks of increasing concern that bad loans at Spain’s lenders might overwhelm public finances. The dollar and yen fell on decreased demand for refuge assets as shares rallied, according to Bloomberg.

The euro rose nearly one per cent to $1.26694 on Monday, its highest level since May 23, according to Reuters.

The rise comes after a bailout package was agreed at the weekend, which Spanish economy minister Luis de Guindos stressed that it was not a rescue but a loan that imposed restrictions only on the country’s banks.

Mariano Rajoy, the Spanish prime minister, said on Sunday that the eurozone deal had secured Spain a “line of credit” for the country’s debt-stricken banks that would ensure the “credibility of the euro”.

Olli Rehn, the EU Economic Affairs Commissioner, said the Spain deal was critical to reassure jittery markets.

Spain’s economy is twice the size of the other bailed-out countries combined.

Analytically: “The Eurogroup has been informed that the Spanish authorities will present a formal request shortly and is willing to respond favourably to such a request. The financial assistance would be provided by the EFSF/ESM for recapitalisation of financial institutions. The loan will be scaled to provide an effective backstop covering for all possible capital requirements estimated by the diagnostic exercise which the Spanish authorities have commissioned to the external evaluators and the international auditors. The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to EUR 100 billion in total.

Following the formal request, an assessment should be provided by the Commission, in liaison with the ECB, EBA and the IMF, as well as a proposal for the necessary policy conditionality for the financial sector that shall accompany the assistance.

The Eurogroup considers that the Fund for Orderly Bank Restructuring (F.R.O.B.), acting as agent of the Spanish government, could receive the funds and channel them to the financial institutions concerned. The Spanish government will retain the full responsibility of the financial assistance and will sign the MoU.

The Eurogroup notes that Spain has already implemented significant fiscal and labour market reforms and measures to strengthen the capital base of the Spanish banks. The Eurogroup is confident that Spain will honour its commitments under the excessive deficit procedure and with regard to structural reforms, with a view to correcting macroeconomic imbalances in the framework of the European semester. Progress in these areas will be closely and regularly reviewed also in parallel with the financial assistance.

Beyond the determined implementation of these commitments, the Eurogroup considers that the policy conditionality of the financial assistance should be focused on specific reforms targeting the financial sector, including restructuring plans in line with EU state-aid rules and horizontal structural reforms of the domestic financial sector.

We invite the IMF to support the implementation and monitoring of the financial assistance with regular reporting.”

The eurozone is “holding  a teleconference of the Eurogroup on Saturday at 4:00pm (1400 GMT) to agree a declaration on Spain’s intention to request aid and the Eurogroup’s commitment to granting it,” a European government source said, according to Reuters.

“The government of Spain has realised the seriousness of their problem,” a senior German official said, according to the Reuters news agency.

The conference came after Spain’s credit rating was downgraded by three notches on Thursday by Fitch, highlighting the Spanish banking sector’s exposure to bad property loans and contagion from Greece’s debt crisis.

Spanish Deputy Prime Minister Soraya Saenz de Santamaria said on Friday that the country could decide this month whether to request a bailout. She said the government will not act until receiving evaluations from the IMF and two independent auditors Spain has hired and a separate independent audit of the banking sector, is due on June 21. The auditors’ surveys are due by June 21, according to Al Jazeera. She added that an agreement needed to be reached before a Greek election on June 17 which could cause market panic.

Financial industry sources told Reuters on Thursday that a report by the IMF, claims that Spanish banks are vulnerable and need at least a 40 billion euro ($49.87 billion) capital injection, after stress test it performed on the country’s financial sector.

Spain, Italy, Candada, Australia, Britain, France, Germany, announced the expulsions after talks with each other on what they called intolerable levels of violence, according to Reuters reports.

British Foreign Minister William Hague said the expulsions aimed to tell Assad’s government  that time was running out for them to comply with the peace plan.

French President Francois Hollande said the Syrian ambassador was to be expelled, hours after Australia announced a similar move, as France is preparing to host a new Friends of Syria meeting in early July, President Francois Hollande said on Tuesday, AP reported.

Spain is also expelling its Syrian ambassador, DPA reported, while Canada said all remaining diplomats are being told to leave.

Italy declared the Syrian ambassador and other embassy staff  “persona non grata,” the foreign ministry said,

More than 10,000 people have been killed since the uprising against Assad’s 11-year-rule broke out in March 2011, most of them opposition supporters killed by the army or security forces.

Meanwhile, Annan, the UN-Arab League envoy, has held talks with Bashar al-Assad, the Syrian president, as the UN human rights office has declared that more than 90 people who were killed in the Houla region were “summarily executed”.

Annan expressed what his spokesperson, Ahmed Fawzi, called “the grave concern of the international community about the violence in Syria” when he met Assad in Damascus on Tuesday, according to Al Jazeera.

Gross domestic product fell 0.3 percent, according to data issued by the National Statistics Institute, while Spain’s IBEX index finished April down 12.5 percent in its worst monthly showing in nearly 1-1/2 years. Investors braced for more turbulence in May, Reuters reported.

The country is caught between  pressure from its European counterparts to fix public finances and growing resistance  to austerity measures that have helped push unemployment to more than double the EU average.

The statistics were released while new figures about unemployment rate of 25 percent  sparked protests, with thousands taking to the streets.

Economists said that the country’s spending cuts aimed at meeting EU deficit limits, together with troubles in the banking sector, would delay any return to growth until late this year or beyond, according to Bloomberg.

It is the second recession since 2009 for the euro zone’s fourth largest economy and came as the government tries to convince investors it would not need financial bailouts like other European countries caught in the debt crisis.

Standard & Poor’s, the ratings agency, made things worse  with a two-notch rating downgrade last week and on Monday it severely cut the credit score. The banks were damaged by the real estate collapse that began in 2008 and now bad loans in other sectors of the economy have risen sharply.

A war of words erupted last week between Hollande, who decried Germany’s fiscal-focused leadership in the two-year-old financial crisis, and Merkel, who said that the turmoil can’t be resolved without cutting debt. Polls show that Hollande is likely to succeed Nicolas Sarkozy as France’s next president after winning the first round of voting April 22, according to Kathimerini.

Greece will also hold elections on May 6, with polls showing that no party will win enough votes for a parliamentary majority. The lack of a clear mandate could complicate Greek bailout efforts, since the new government must spell tell its creditors in June how it will make fresh budget cuts.