Spain set for €100bn 'bailout-lite' as it finally asks for help

Sunday 10 June 2012

SPAIN is to get up to €100 billion (£80bn) in loans from eurozone funds to help shore up its struggling banks.

A woman walks past the defaced logo of nationalised lender Bankia in Madrid on Friday

Custom byline text:

Europe’s fourth-largest economy bows to pressure but loans to Spanish banks come without austerity conditions By Luke Baker in Brussels

The move was agreed after hours of crisis talks between eurozone finance ministers yesterday.

Spain's economy minister, Luis de Guindos, said his country would shortly make a formal request for assistance.

"The Spanish government will request assistance ... for those banks that need it," he told a press conference in Madrid. "The amount required will be enough to cover the capital necessary, plus a significant margin.

"Since the funds will be asked for to attend to the financial sector's needs, it has been agreed with the eurogroup that it will be specifically for the financial system only." No economic or fiscal conditions are attached to the loans.The Spanish government had been reluctant to ask for a bailout like the ones given to Greece, Ireland and Portugal, as these rescue packages came with demands for tax rises and spending cuts. De Guindos said the loans would come with conditions for the banks receiving them, such as restructuring, but there would not be "microeconomic conditions" for Spain. "We hope that as a result of these injections [of capital], families and companies will have more solvent banks which are able to offer them credit, which they are not able to do at the moment," he said. Eurozone finance ministers welcomed the decision from Spain, Europe's fourth-biggest economy, to ask for help. Spain had come under pressure from the European Central Bank, Germany and Netherlands to make the move before Greek elections on June 17, amid fears that political chaos in Greece and the weakness of Spanish banks could threaten the euro's financial stability. "There is a need to ensure that the euro-area is properly ringfenced and protected from possible Greek fallout and that means strengthening Spain's banks," said an official. Pressure for eurozone action to stem the escalating crisis was increased by a warning from Moody's financial researchers overnight that Spain's need for help to refinance its banks and an exit from the euro by Greece could lead to additional credit-rating downgrades for the region. EU sources have indicated that the final deal is unlikely to be agreed until the June 21 meeting of finance ministers in Luxembourg. Negotiations will focus on the terms and conditions of the aid from the European Financial Stability Facility (EFSF) as Spain resists a full scale EU-IMF bailout programme such as those in Portugal, Ireland or Greece. A "bailout lite" would help salve Spanish pride. Spain is the world's 12th-largest economy. EU and German officials have cited national pride as a barrier to requesting a full assistance programme. The country's biggest failed bank, Bankia, is already estimated to have cost €23.5bn to rescue and its shareholders have seen the value of their holdings wiped out.The European Commission and Germany both agreed in principle last week that Spain should be given an extra year to bring its budget deficit down below the EU limit of 3% of gross domestic product because of the deep recession.■spain

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis. If you're a relatively new user then your comments will be reviewed before publication and if we know you well then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules, which are available here.

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

Spain set for €100bn 'bailout-lite' as it finally asks for help

Commenting & Moderation

MOST READ

SPONSORED LINKS

MOST COMMENTED