ANDRES KUDACKI/Associated Press
ANDRES KUDACKI/Associated Press
MADRID – Spain will ask for a bailout for banks felled by bad real estate loans, in an about-face that European officials welcomed Saturday and said could cost up to 100 billion euros ($125 billion).
A rescue for Spain will be Europe’s fourth since the single currency bloc’s debt crisis erupted two years ago. While the country’s leaders have long said it would not need help righting its financial sector, markets have been nonetheless concerned about its ability to pay its way.
In recent weeks, investors have demanded higher and higher costs to lend to Spain, and it became clear it would be just too expensive for the country to borrow the money necessary for a bank rescue from the markets.
Economy Minister Luis de Guindos said Saturday the aid will go to the banking sector only and so would not come with new austerity conditions attached for the economy in general.
A statement from the finance ministers of the 17 countries that use the euro explained that the money would be fed directly into a fund Spain set up to recapitalize its banks, but underscored that the Spanish government ultimately is responsible for the loan.
Still, that plan allows Spain to avoid making the onerous commitments that Greece, Ireland and Portugal were forced to when they sought their rescues.
Instead, the eurogroup statement said that it expected Spain’s banking sector to implement reforms and that Spain would be held to its previous commitments to reform its labor market and manage its deficit.
The exact figure of the bailout, however, has not yet been decided. De Guindos said the country is waiting until independent audits of the country’s banking sector have been carried out before asking for a specific amount.
De Guindos did say, however, that Spain would request enough money for recapitalization, plus a safety margin that will be “significant.” The eurogroup statement said that meant the cost could reach 100 billion euros.
With markets in turmoil, de Guindos said the government’s efforts to shore up the financial sector “must be completed with the necessary resources to finance the needs of recapitalization.”
“Therefore, the Spanish government states its intention to request European financing for the recapitalization of banks that need it,” the minister told a press conference after a videoconference with colleagues from the eurozone.
The Spanish acceptance of aid for its banks is a big embarrassment for Prime Minister Mariano Rajoy, who insisted just 10 days ago that the banking sector would not need a bailout.
But since then, pressure has been piled on Madrid to ask for help for its banks, which are struggling with toxic real estate loans and assets.
Spain was hit Thursday with a downgrade of its credit rating to just two notches above junk by credit rating agency Fitch, which estimated Spanish banks may need as much as 100 billion euros. Then on Friday, Moody’s Investor Services warned it could downgrade Spain and other countries in the eurozone.
In the early hours of Saturday, the International Monetary Fund released a report estimating that Spanish banks need a recapitalization injection of at least 40 billion euros ($50 billion) after a stress test it performed on the country’s financial sector. That report came out three days ahead of schedule, underscoring the urgency of the situation.