Spain poised to seek bailout

Posted on June 8, 2012

Spain could request bailout aid for its struggling domestic banks as early as Saturday during conference calls between officials from all 17 euorozone finance ministries, making Madrid the fourth member of the single currency to need a rescue from EU authorities since the outbreak of the sovereign debt crisis.

People briefed on planning for the calls, one with senior officials and a second with finance ministers themselves, said leaders want to move pre-emptively in order to assuage growing market uncertainty. The decision was first reported by Reuters.

    There were signs on Friday that the Spanish government may back away from a formal request after news of the calls was made public. Spanish media quoted deputy budget minister Fernández Currás on Friday as saying the reports were “false”.

    If Spain makes the request, it would come before private auditors hired by the Spanish government to dig into its banks’ books make a final judgement on the sector’s needs, now due on June 21. But officials have decided speed would demonstrate their commitment to stabilising the country’s financial sector.

    Officials also want to move ahead of Greek elections, to be held a week on Sunday, in order to make sure Spain is not at risk if far-left Syriza – which has vowed to scrap its existing €174bn bailout, putting the country’s euro membership at risk – becomes the largest party in the Greek parliament.

    “It is essential that the other euro-area member states are pre-emptively and effectively ringfenced and protected from any possible Greek fallout, before the elections,” said a senior European official.

    Although Madrid is expected to declare its need for outside funding for its banks on the call, the size and the structure of the bailout is not expected to be decided right away. “You don’t sign on the dotted line by next week,” said one person briefed on the preparations.

    European officials are still debating whether to give Spanish banks just enough to recapitalise themselves – Spanish banking executives have put the figure needed at about €40bn – or to overwhelm the markets by making the loans much bigger, perhaps as much as €80bn-€90bn.

    “In case a Spanish request is received, it is necessary to overshoot the amount, even if the exact size would be worked out in the coming weeks,” said the senior EU official. “It would obviously be focused on the recapitalisation of the banking sector. The fiscal and economic policies of Spain are on track.”

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