Spain on Saturday appealed to eurozone partners to help refinance its struggling banks, but Economics Minister Luis de Guindos appeared determined to save appearances by stating that the request did not amount to a bailout.
In a statement released after a crisis conference call, the Eurogroup panel of eurozone finance ministers said that “up to 100 billion euros ($125 billion) in total” would be made available to Spain.
“It is a financial help, it has nothing to do with a bailout, nothing at all,” Mr. de Guindos said in a news conference in Madrid.
Loans were expected to come from the current euro rescue fund, the European Financial Stability Facility (EFSF), and its more solid successor to be launched in July, the European Stability Mechanism (ESM) -- but not from the International Monetary Fund (IMF).
The role of the Washington-based crisis lender -- which has contributed to previous euro area bailouts for Greece, Ireland and Portugal -- would be limited to “support the implementation and monitoring of the financial assistance with regular reporting,” the Eurogroup said.
In return for help, Madrid will have to restructure its financial sector under strict EU-IMF supervision, but would not be subject to extra austerity requirements, outside of obligations to stick to existing EU deficit targets.
“The only conditions will be for banks,” Mr. de Guindos said.
Tougher deficit reduction plans would have taken a deep toll on the Spanish economy, which is already reeling from a deep recession and soaring unemployment.
Spanish authorities were forced to turn to the EU for help after a report from the IMF on Friday calculated that Spanish bank recapitalizations would require at least 40 billion euros.
An estimate from ratings agency Fitch, coming the same day, was 60 to 100 billion euros. At the same time, the London-based agency downgraded Spain by three notches, from A to BBB, limiting the country’s ability to borrow from the markets.
Even before the downgrade, Spanish borrowing costs had already climbed to levels that had forced Portugal, Ireland and Greece to ask for financial lifelines.
Mr. De Guindos said he was “convinced” that, since Spain was no longer alone in facing its multibillion bank cleanup bill, there would be “less pressure” on Spanish government bonds.
European Commission President Jose Manuel Barroso and EU Economy Commissioner Olli Rehn said they were “certain” of Madrid’s capacity to “gradually regain the confidence of investors.” Mr. De Guindos said the 100-billion-euro figure offered a “safety margin” that would not “leave the slightest doubt about the capacity” of the Spanish bank bailout fund, FROB, to tackle recapitalizations.
Only 30 per cent of lenders will need help, the minister predicted, insisting that more clarity would be provided by two external audit firms, Oliver Wyman and Roland Berger, before the end of the month.
Austria’s finance minister, Maria Fekter, was quoted as saying by Austrian press agency APA that Spain would require an estimated 40 billion to 60 billion euros immediately, while more would come later for bank restructurings and as “a buffer” to regain market trust.
Earlier Saturday, an interview by German Bundesbank President Jens Weidmann reinforced perceptions that Madrid had been forced to jump on its bailout request.
“If Spain, in light of its financial needs, sees itself being overwhelmed, then it should make use of the instruments that have been created for these conditions,” Weidmann told the Welt am Sonntag newspaper.
But de Guindos replied “absolutely not” when asked whether he had felt under pressure from partners.
Crucially, the Spanish aid announcement was made ahead of the June 17 Greek elections, which may worsen the eurozone crisis by producing, for the second time in a year, a majority opposed to EU-IMF bailout conditions, opening the doors to Athens’ eurozone expulsion.
Such an event would “pose a threat to the euro’s continued existence” and affect the credit standing of Cyprus, Portugal, Ireland, Italy and Spain, the Moody’s credit ratings agency said Friday.