Preparations underway for Spain bank bailout

June 09, 2012 05:24 pm | Updated November 16, 2021 11:51 pm IST - Brussels

A woman uses an ATM machine at a branch of the Bankia bank, in Madrid. The Spanish economy is in recession for the second time in three years. Photo: AP

A woman uses an ATM machine at a branch of the Bankia bank, in Madrid. The Spanish economy is in recession for the second time in three years. Photo: AP

The eurozone is making preparations for a bailout of Spain’s banking sector, but Madrid has yet to file a formal request for assistance, a spokesman for Eurogroup President Jean-Claude Juncker told DPA on Saturday.

Government officials in various European capitals and EU authorities in Brussels said on Friday evening that they are standing by to act immediately if the Spanish government finally makes a request for EU aid.

However, no conference calls of eurozone finance ministers or other meetings are planned for Saturday as reported by some agencies earlier, the officials said.

Various estimates suggested that Spain, euro zone’s fourth largest economy, might need between 60 billion euro and 100 billion euro to prop up the country’s banking sector, crippled by its massive involvement in the real estate bubble in 2008.

The euro zone bailout fund, the European Financial Stability Facility (EFSF), has sufficient capital to meet Spain’s immediate requirements to capitalise the distressed banks, the officials said.

So far, Spain has been resisting pressure from its EU partners and the European Commission to accept a bailout and insisted that it will manage the crisis in the banking sector with its own resources.

But the pressure increased after the rating agency Fitch downgraded the country’s credit worthiness by three notches to BBB on Thursday, citing Spanish bank’s exposure to the collapsed property market and the risk of a contagion from Greece’s debt crisis as the reasons.

EU officials are reported to be working on a plan to give Spain a bailout restricted to the banking sector, which will spare the country a requirement to implement unpopular austerity measures and structural reforms that were imposed on Greece, Ireland and Portugal when they were bailed out.

It may involve the EFSF issuing bonds for Spanish banks, whose liquidity problems can be overcome by using the bonds as collateral to tap the resources of the European Central Bank (ECB), media reports said.

The Spanish government had earlier said that it would wait for an audit by the International Monetary Fund and a separate report by two independent assessors on how much extra capital the banks needed before taking a decision to ask for EU aid.

Spain’s banking crisis, which has been lingering for nearly two years, worsened after the fourth largest bank Bankia, which lost billions of euros through its exposure to the collapsed property market, had asked the government at the end of last month 19 billion euros to avert bankruptcy.

Bankia had already received from the Spanish government a financial support of 4.5 billion euros when it was partly nationalised last month and the total costs of rescuing the bank will go up to 23.5 billion euros.

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.