Spain says no need for rescue

Wednesday, 20 June 2012 15:55

Posted by Muhammad Iqbal

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MADRID: Spain rejected any need for a full-blown bailout Wednesday as it prepared an official request for up to 100 billion euros ($125 billion) to save its stricken banks.

Fears mounted among investors that soaring market rates could eventually force the eurozone's fourth-largest economy to seek an international rescue like Greece, Ireland and Portugal before it.

But Spain was in no such danger, Budget Minister Cristobal Montoro told parliament. "Spain has not been rescued because it does need to be rescued. Spain has the support of its European partners and European institutions," the minister said.

Spain's eurozone partners agreed June 9 to extend a loan of up to 100 billion euros to salvage banks laden with bad loans extended during a real estate bubble that imploded in 2008.

Madrid is expected to transmit an official request for the aid to its partners at a eurozone finance ministers' meeting in Luxembourg on Thursday, a European Union diplomat said in Brussels.

"The details are expected to be negotiated tomorrow," said the diplomat, who asked not to be identified.

The size of the request will depend on two independent audits on Spain's troubled banks that are expected to be finalised on Thursday, one from German firm Roland Berger, the other from US firm Oliver Wyman.

"The absence of details (on the size and timing of the aid) has been prejudicial," said the source.

Despite the Spanish banking rescue deal and weekend Greek elections, which averted the immediate threat of Athens leaving the eurozone, debt markets have punished Spain.

The yield on Spanish benchmark 10-year government bonds shattered the 7.0-percent barrier on Monday for the first time since the creation of the euro in 1999, pushing above 7.2 percent.

On Wednesday, the yield on 10-year bonds still hovered just below seven percent, a rate that the government has conceded is unsustainable over the longer term.

Spain managed to raise 3.04 billion euros in an auction of 12- and 18-month notes on Tuesday but it had to pay sharply higher borrowing rates of more than five percent a year.

The battered economy faces a second major test on Thursday when it seeks to raise up to two billion euros in an auction of two-, three- and five-year bonds.

Spain's budget minister hailed a Group of 20 summit in Los Cabos, Mexico, where leaders issued a statement saying they welcomed both Spain's plan to recapitalize the banks and the eurozone's loan.

"Spain has, as we found out last night, the express support of the G20 for the programmes the Spanish government is pursuing, among them the recapitalization of the banking sector," Montoro said.

"What we have to send to the Spanish people is a message of confidence, of calm, of security," he said.

"We are in Europe, we are Europe, we are the euro," the minister proclaimed. The leaders of Spain, Italy, France and Germany meet in Rome on Friday to thrash out a common position on the debt crisis ahead of a full European Union summit in Brussels from June 28-29.

"From a crisis such as the one we are going through we will emerge strengthening Europe, we will emerge strengthening the euro, we will emerge building a common project, that common project that we saw yesterday in the support from the G20 declarations," he said.