Spain safe, but crisis in eurozone spreads

THE Spanish government last night tried to calm fears that it would need a bail-out as the contagion sweeping the eurozone saw the credit rating of seven German banks downgraded.

Ratings agency Moody’s downgraded the German banks because of concerns that they are over exposed to eurozone debt as the Spanish economy appeared to be teetering on the edge.

The move came as Prime Minister David Cameron and US president Barack Obama issued a joint statement calling for an immediate plan to resolve the eurozone crisis before it triggered a worldwide economic meltdown.

The two leaders agreed on a statement during a phone conversation ahead of Mr Cameron’s visit to Berlin today.

The issue will be discussed again when the two men meet at the crucial G20 summit in Mexico later this month.

Meanwhile, the government welcomed new plans by the European Commission to protect taxpayers and avoid future bank bail-outs as a “positive step” towards breaking the “too big to fail” culture of the European banking sector.

The contacts came amid fears over Spain’s ability to raise funds on international markets at affordable levels.

But ahead of a bonds sale today, the Spanish finance minister Cristobal Montoro, who earlier this week said his country had been closed out of the international markets, tried to calm fears and said his country would not be seeking a bail-out.

In Germany, concerns grew over the banking sector as Moody’s downgraded one of the most prominent banks, Commerzbank AG, Germany’s second biggest. Its long-term rating was cut to A3, with a negative outlook, from A2.

Also hit were DekaBank and DZ Bank, as well as three of Germany’s public-sector banks – Landesbank Baden-Wuerttemberg, Norddeutsche Landesbank and Landesbank Hessen-Thueringen.

Meanwhile, European Union financial services commissioner Michel Barnier announced the latest plan for EU-wide rules to deal with bank failures, which EC president Jose Manuel Barroso described as “an essential step towards banking union in the EU”.

Under the proposals, European banks would be obliged to draw up recovery plans setting out measures they would take if their finances weakened. They would also have to prepare a “resolution plan” with options for dealing with banks “in critical condition which are no longer viable”.

Mr Barnier said the plan would help public authorities intervene “decisively” before bank problems arise.

“The financial crisis has cost taxpayers a lot of money,” he said.“Today’s proposal is the final measure in fulfilling our G20 commitments for better financial regulation. We must equip public authorities so that they can deal adequately with future bank crises. Otherwise citizens will be left to pay the bill, while rescued banks continue as before knowing that they will be bailed out again”