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A couple of weeks ago Spain had formally asked the EU officials for money to bail out its ailing bank sector.

Last Friday the euro zone finance ministers huddled together and formally approved the bank bailout request.

The “Bailout Lite” program is on like Donkey Kong!

In a move to provide fresh capital for Spain’s financially troubled banks, the group of 17 euro zone finance ministers revealed that they’re willing to give up to 100 billion EUR worth of financial aid.

Under the Memorandum of Understanding (MoU), the bailout loans with an average of 12.5 years and a maximum of 15 years will be provided by the EFSF at interest rates between 3% to 4% until the permanent bailout fund ESM becomes operational.

The exact amount that the Spanish banks need won’t be final until September when the independent auditing firms hired release their reports.

With Spanish banks getting its much-needed financial support from even reluctant contributors like Finland, you would think that investors would do their happy dances at the release of news.

Too little and too late for Spain?

But instead of celebrating in the streets, traders reacted as though an evil masked man has just declared his plans to take over Spain and blow it to bits. Oh wait, that’s Gotham! In any case, traders sold the euro like there’s no tomorrow.

The euro plunged against its major counterparts with EUR/USD dropping to a low not seen in two and a half years. It also made a three-year low against the pound and record lows against comdolls like the Aussie, Loonie, and Kiwi.

The damage didn’t end with the euro, folks! Aside from the Spanish stock market capping the day with a 5.8% slide, Spain’s bond yields also rocketed to a record high of 7.18%, which is uncomfortably close to levels when Greece, Ireland, and Portugal had asked for full-scale bailouts.

EUR/USD selloff

Apparently, market junkies think that Spain’s problems have already escalated beyond its banking sector. For one thing, the high bond yields would make it much harder for the government to have access to markets and pay off its ridiculously high public debt.

Confidence in Spain isn’t looking good either. The government recently downgraded its 2013 growth forecasts from 0.2% to -0.5%.

Not only that, but rumors are spreading that bondholders of weak Spanish banks could still face losses despite the bank bailout relief. And need I mention that the anti-austerity protests are still taking toll on investor confidence?

Of course, it doesn’t help that Valencia, Spain’s third largest and second most indebted state, has also announced its plans to tap the 18-billion EUR emergency fund that Madrid has set up for financially troubled states. Investors believe that at this rate, it won’t be long before Spain asks for a full-scale bailout!

With the euro zone officials also worrying about Greece’s bond payment deadline in August and Italy’s rising debt costs, it will probably take a while before they do something to alleviate Spain’s worsening economic prospects.

Unfortunately, time is one of the many things that Spain can’t afford right now. Let’s just hope that the officials aren’t too late when they finally get around to helping Spain!