In a conference call, ministers signed off on a lengthy memorandum of understanding with Spain spelling out the terms of the aid, which will be fully disbursed by the end of 2013.

But before Spain can decide exactly how much money it needs, it must see the results of in-depth audits of its banking sector, which is riddled with bad property loans.

Speaking at a news conference after the conference call, Luxembourg’s Finance Minister Luc Frieden said the ministers had given the go-ahead.

“We have formalised what we discussed in the past two Eurogroup meetings. 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 told reporters.

“The approval of all 17 ministers is there, and that means that the programme can continue. Money will not flow immediately, because work on the analysis of the specific banks is ongoing.”

The bank rescue, and fresh austerity measures and looser fiscal targets agreed with Madrid, are aimed at avoiding a full sovereign bailout that the eurozone can barely afford. There are signs of growing discontent at the economic pain being heaped on the Spanish public. Hundreds of thousands of Spaniards marched against the centre-right government’s latest measures on Thursday evening, following more than a week of demonstrations across the country.

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

Under the bailout memorandum, 14 banking groups that make up about 90 per cent of Spain’s banking system will be tested for their recapitalisation needs in a review due to be completed by the second half of September.

Madrid expects €30 billion in a first tranche of money that will be available immediately for state-rescued banks that urgently need funds.

An independent audit from consultancy firms Oliver Wyman and Roland Berger, published on June 21, showed the banking sector needed up to €62 billion in total.

But a second, more detailed audit, as well as new stress tests, will help determine precisely how much each bank needs and in what form — loans or cash.

Spain’s three biggest banks — Banco Santander, BBVA and Caixabank — would not need extra capital even in a stressed scenario, the independent audit said.