Spain to plead for bank bailout from Eurozone

By EDDIE BARNES
Published on 09/06/2012 22:07

SPAIN confirmed last night that it will ask for bank bailout from the Eurozone to rescue its stricken banks.

The announcement, which did not include a figure for the size of the bailout requested, came after European finance ministers held emergency talks to discuss a path forward for the country.

Amid fears that the rescue package may need to go as high as 100bn if market confidence tumbles further, the conference call of Eurozone ministers last night focused on a potential deal to be sorted before the Greek elections next weekend.

Spain has been under pressure to accept support from the International Monetary Fund (IMF) ahead of that election so it has the resources to withstand any market shocks if Greece backs anti-bailout parties, a move which could trigger its exit from the euro. An IMF report estimated that Spain’s “vulnerable” banks need a cash injection of at least ¤40bn.

“It is critical that the authorities continue to take decisive action to address the weaker institutions and restore market confidence in Spanish banks,” the report said. It was released three days ahead of schedule, underscoring the urgency of the situation.

US president Barack Obama said on Friday that European leaders needed to act swiftly to stabilise their financial system.

The Spanish government had claimed that it did not need outside help to shore up its banks. “There has been no change,” a spokeswoman from the economy ministry said earlier in the day.

Spanish prime minister Mariano Rajoy had insisted that any decision will come after the results of two independent audits of the Spanish banking system, which are due out within two weeks.

However, both Germany and Brussels are understood to be exerting pressure on the Eurozone’s fourth largest economy. Accepting a bailout, Spain will become the fourth Eurozone country to do so, after Greece, Ireland and Portugal, and it is by far the biggest economy to do so.

Speculation that Spain would have to act sooner rather than later mounted. In an interview on Portuguese radio, European Central Bank vice-president Vitor Constancio said: “It is expected that Spain will formulate a request for aid exclusively for banks recapitalisation.”

Major banks are struggling to deal with toxic property loans.

The country’s fourth-largest lender, Bankia, recently asked for a total of ¤23.5bn to help deal with losses on loans that cannot be repaid.

Many banks borrowed large amounts on the international markets to lend to developers and homebuyers, a riskier strategy than funding them with deposits from savings.

Spain would prefer any EU funding to be targeted directly at its banks, rather than at the government.