European officials say Spain is poised to seek billions of dollars in bailout money from other countries in the euro currency bloc to rescue its distressed banks.
Spain has yet to ask for help from its European neighbors, but several officials said Friday they expect Madrid will seek a bailout when key political and financial leaders confer in conference calls Saturday. Spain would become the fourth of the 17 eurozone countries needing an international bailout, following rescue packages already sent to Greece, Ireland and Portugal.
Across the Atlantic, U.S. President Barack Obama said at a White House news conference that he believes European leaders “understand the seriousness of the situation and the urgent need to act” to end the continent’s long-running debt crisis. He said “the solutions to these problems are hard,” but that European leaders can resolve them.
Obama also said he thinks it is “in everyone’s interest” that debt-ridden Greece remain in the 17-nation eurozone. He warned Greek voters that leaving the currency union after new parliamentary elections June 17 would deepen their economic plight.
The size of a Spanish rescue pact – aimed at stabilizing Spanish banks weakened by defaults on real estate loans – is uncertain, but analysts say it could easily total more than $100 billion.
Spanish Prime Minister Mariano Rajoy declined to speculate on the amount his country could seek, but said he was determined to resolve the newest crisis in the eurozone’s government debt crisis, now in its third year.
“First of all, we have two independent evaluators,” said Rajoy. “Afterwards, we will study the formula for financing the recapitalization of the bank sector. But you can be totally and absolutely certain that Spain has a government which is determined to do as much as it is necessary and fair to get out of the crisis.”
A Spanish bailout would establish a new low point in the debt crisis, chiefly because the Spanish economy is the eurozone’s fourth largest. It is bigger than the Greek, Irish and Portuguese economies combined.
Financial trader Robert Halver of the Baader Bank says the European Central Bank and the continent’s leaders need to resolve the Spanish bank problems.
“Banks need a large amount of state money,” said Halver. “But Spain does not have this money because the state too is short of money. That is where the [European Central Bank] has to come in. If we do not get the problem under control, one thing is clear: Spain will become Greece times ten.”
Meanwhile, Greece, in its fifth year of a recession, said Friday its economy shrank 6.5 percent in the first three months of the year compared to a year ago and that its industrial production continued to fall in April.
The Greek election has effectively become a referendum on whether Athens stays in the eurozone or becomes the first to leave it. Greece’s fractious political parties were unable to forge a new government after a splintered parliamentary election last month.
The key electoral issue is whether Greece adheres to its earlier pledge to impose widespread austerity measures in exchange for its second bailout. Greeks are widely opposed to the spending cuts, but polls also show they want to remain in the eurozone.