9th June, 2012
Spain has formally requested a European lifeline of up to 100 billion euros ($125 billion) to save its stricken banks and try to avert a broader financial catastrophe.
Fellow finance ministers in the 17-nation eurozone accepted the plea in a statement released after an emergency video conference lasting more than two hours.
“The Spanish government declares its intention to solicit European financial help for the recapitalization of those banks that need it,” Economy Minister Luis de Guindos told a news conference.
It was a dramatic climbdown for Spain, where successive governments have hotly denied any need for outside aid.
Prime Minister Mariano Rajoy’s conservative government finally had to bow to rising pressure from world leaders and more importantly the markets, which have sent its borrowing costs soaring.
Defying desperate efforts by eurozone policymakers, the emergency has spread to the region’s fourth-biggest economy — Spain’s is twice the size of that of Greece’s, Ireland’s and Portugal’s combined.
De Guindos refused to describe the aid as a rescue, which his government had categorically ruled out even in the days leading up the formal request for cash.
“This has nothing to do with a rescue,” he insisted, arguing that the aid would be directed to the 30 percent of banks with the greatest exposure to the 2008 property market crash.
The deal imposed no conditions on the overall Spanish economy, and no new austerity measures, de Guindos said.
“The only conditions are for the banks,” said the visibly tense finance minister. “There are no additional conditions for the Spanish people,” he added.
After talks lasting more than two hours, the eurogroup ministers issued a statement saying they were “willing to respond favourably” to the request for financial assistance.
Up to 100 billion euros would be provided by the European rescue mechanisms to recapitalise Spanish banks, it said, providing an “effective backstop” for all possible requirements.
The size of the aid would depend on an external audit already being carried out for Madrid by consultants Roland Berger and Oliver Wyman, and due by June 21.
The cash would be channeled through Spain’s state-backed bank Fund for Orderly Bank Restructuring, it said.
Eurozone ministers said they were confident Spain would honour commitments to cut the deficit and restructure the economy. “Progress in these areas will be closely and regularly reviewed,” they said.
De Guindos stressed that the 100 billion euros included a big safety margin.
“This announcement is good news for the Spanish economy and for the future of the eurozone,” he said.
International Monetary Fund bank stress tests, unveiled Friday three days ahead of schedule, determined that Spanish banks need about 40 billion euros ($50 billion) in new capital.
But a Fund official noted that the banks would probably need more than that to build a “credible firewall.”
Policymakers hope the rescue will satsify financial markets and put Spain in a safe harbour ahead of the Greek elections June 17, which risk leading to a destabilizing exit from the eurozone.
German Finance Minister Wolfgang Schaeuble hailed the deal for Spain saying he and his colleagues welcomed Spain’s “determination” to recapitalise the banks with “rescue funds”.