Spain to Request EU Aid for Banks : 100 Billion

The Wall Street Journal
Spain said it would ask Europe for financial aid for its ailing banks, a step that would make it the fourth and largest euro-zone economy to require rescue funds from its euro-zone partners
Spanish Finance Minister Luis de Guindos told a news conference that the European Union will grant Spain a loan of as much as €100 billion ($125 billion) that the government will funnel to banks that need capital
Euro-zone finance ministers said they welcomed the Spanish step, saying the sum "must cover estimated capital requirements with an additional safety margin."
Mr. de Guindos said, "The Spanish government is determined to do its best to protect the stability of the euro."
He added that the conditions attached to the loans "will be imposed to banks, not to Spanish society, nor to its fiscal or economic policy."
The agreement came after days of talks between Spanish and European officials that culminated in a conference call among finance ministers Saturday afternoon, in which the framework for the support was agreed
European governments put intense pressure on Spain to agree to a support package for banks that have suffered in a real-estate crash—and ahead of Greek elections next weekend that they fear could send a new wave of turmoil through the region's financial markets
The talks extended as Spain tried to minimize conditions on the loans and to limit the role of the International Monetary Fund, officials said. Spain also strenuously sought to avoid the aid being depicted as a bailout like those provided to Greece, Ireland and Portugal, officials said
The euro-zone ministers said the IMF has been invited to assist in the implementation and monitoring of the financial support to Spain "with regular reporting." However, unlike Greece, Ireland and Portugal, Spain won't be asked to implement an extra austerity program beyond that it has already committed to. Unlike in these programs, the IMF won't provide funding for Spain
The IMF's managing director, Christine Lagarde, said in a statement, "The IMF stands ready...to support the implementation and monitoring of this financial assistance through regular reporting." She also welcomed the decision to backstop Spanish banks with euro-zone funds
In a report released late Friday, the IMF said it thought Spain's banks need an additional €37 billion in capital to cover losses in a deteriorating local economy
But it added they might need to raise much more than that—between €60 billion and €80 billion—to shore up investor confidence
A formal request by Spain is expected before June 21, when euro-zone finance ministers meet in Luxembourg and after a detailed report is issued by two government-appointed advisers on the banks' capital needs. "It was in everyone's interest to have the situation clarified before the Greek elections," a European official said
The European Commission, the European Union's executive arm, said it stood ready to swiftly play its role in the Spanish loan
"The Commission is ready to proceed swiftly with the necessary assessment on the ground, in close liaison with the [European Central Bank], the [European Banking Authority] and the IMF, and to propose appropriate conditionality for the financial sector," Commission president Jose Manuel Barroso and vice-president Olli Rehn said in a statement
 Mr. de Guindos, Spain's finance minister, said the eventual request could be smaller than €100 billion
 The ministers said the support would come either from the euro zone's temporary bailout fund or, as soon as it was operational in July, the permanent rescue vehicle, the European Stability Mechanism
"That figure is mostly for the markets and doesn't mean that the actual disbursements have to be that much," one official said
German Finance Minister Wolfgang Schäuble welcomed "the determination of the Spanish government to address the [bank] recapitalization."
"Spain is on the right track and Germany, as well as the other countries and institutions in the euro zone, and probably the IMF, will closely accompany and support Spain in its efforts to restructure the banking sector," he said
Mr. de Guindos pointed out that the loans Spain will get from the funds will be "lower than market price."
Spain is now paying more than 6% for 10-year money
He said the loan will add to Spain's debt load. Officials said the government failed to secure a deal in which the bailout funds would directly inject capital into Spanish banks, thereby avoiding swelling Spanish government debt
U.S. Treasury Secretary Timothy Geithner, in a statement Saturday, said the U.S. welcomed "Spain's action to recapitalize its banking system and the commitment by its European partners to provide support
These are important for the health of Spain's economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area."
Spanish and EU officials hope the bailout will allow the government to maintain market access to meet its own funding needs
If Spain were to lose market access for a prolonged length of time, the cost of supporting Spain—an economy twice the size of those of Greece, Portugal and Ireland combined—would be enormous
"It's a loan from Europe with extraordinarily favorable conditions and reduces the pressure on the Spanish treasury," Mr. de Guindos said