LONDON, June 11 (IFR) - Spain is expected to remain a guarantor of the European Financial Stability Facility after it receives a proposed credit line to recapitalise its banking sector, a source familiar with discussions at the EFSF said.
Ireland, Portugal and Greece all stepped down as a guarantors of the eurozone rescue fund after they were bailed out.
A different approach is being discussed for Spain’s banking sector recapitalisation, although initials thoughts are that the funding will be routed through the sovereign to the Fund for Orderly Bank Restructuring (FROB), which would increase Spain’s public debt.
Banking sources on Monday morning told IFR that Spain was expected to drop out as an EFSF guarantor after a formal request for funding is made, expected to happen by the next Eurogroup meeting on June 21.
EFSF is still considering request for proposals submitted by banks for an upcoming euro benchmark, expected to come to market this week.
One senior banker said that having Spain as a guarantor would directly affect investor perception of EFSF’s absolute credit risk and potentially hamper future issuance. (Reporting By John Geddie)