Spain Closer To EU/IMF Bailout

(EurActiv) — As Spain’s ten-year borrowing costs neared danger levels following the nationalisation of Bankia, the country’s fourth largest bank, Madrid was given assurances that it could count on external assistance if needed.

Marek Belka, Poland’s central bank governor, said on Monday (28 May) that Spain could count on a firewall of international funding if its troubled banks needed further recapitalisation.

Investors are growing increasingly concerned Spain could be forced to seek an international bailout though Spain’s prime minister has said there will not be any European rescue for Spanish banks.

“Obviously there exists this so-called firewall both in the EFSF (European Financial Stability Facility) and the IMF that should be a guarantee that Spain can count on financial assistance, on bridge financing from abroad,” Belka said at a conference in Lima.

Belka declined to say if Spain would need such assistance.

“Spain is struggling with the typical weaknesses of southern rim euro zone countries but the extent of those problems is much less than those of Greece, and even of other countries there,” he said.

Bankia rescue

The country’s No. 4 Bank Bankia, asked Spain for €19 billion in government help over the weekend and government sources said the country may prop up Bankia with sovereign bonds. There are also growing concerns about the fiscal health of the country’s regional governments.

Investors lacking confidence in Madrid’s efforts sent Spain’s 10-year bond yields near 7% on Monday (28 May), a level at which Ireland and Portugal were frozen out of capital markets and forced to seek international bailouts.

Prime Minister Mariano Rajoy pinned the blame for the rising borrowing costs on concern about the future of the single currency. He again ruled out seeking outside aid to revive a banking sector laid low by a property boom that has long since bust.

“There are major doubts over the euro zone and that makes the risk premium for some countries very high. That’s why it would be a very good idea to deliver a clear message there’s no going back for the euro,” Rajoy told a news conference on Monday (28 May).

“There will not be any [European] rescue for the Spanish banking system.”

Tapping EU bailout fund for banks

Rajoy gave no details of bank recapitalisation plans but for the first time backed calls for the euro zone bailout fund, which will be in place from July, to be able to lend to banks direct.

Asked at a press conference whether he supported possible changes to bailout structures at a euro zone level, Rajoy said: “Many people are in favour of that, and I am as well.”

Spain has repeatedly rejected the need for external help to fund the rescue of its troubled banking sector.

Rajoy did not say how much money might be needed to salvage the country’s troubled banking system after the nationalisation of its fourth-largest lender Bankia, saying he would wait for the completion of an external audit on the situation.

Spain’s central government and regions need to refinance €117.5 billion of debt by the end of the year, while funding a deficit worth €52 billion.