By Julien Toyer and Matthias Sobolewski
MADRID/BERLIN, June 8 Spain is expected to
request European aid for its ailing banks at the weekend to
forestall worsening market turmoil, becoming the fourth and
biggest country to seek assistance since the euro zone's debt
crisis began, EU and German sources said.
Two senior EU officials said finance ministers of the
17-nation single currency area would hold a conference call on
Saturday to discuss a Spanish request for an aid package,
although no figure had yet been set.
The Eurogroup would issue a statement after the meeting,
"The announcement is expected for Saturday afternoon," one
of the EU officials said.
The move comes after Fitch Ratings slashed Madrid's
sovereign credit rating by three notches to BBB from A on
Thursday, highlighting Spain's exposure to its banks' bad
property loans and to contagion from Greece's debt crisis.
"The government of Spain has realised the seriousness of
their problem," a senior German official said.
He added that an agreement had to be reached before a Greek
general election on June 17 which could lead to Athens leaving
the euro zone if parties opposed to the terms of an EU/IMF
There was no immediate official comment from the Spanish
government. The EU and German sources spoke on condition of
anonymity due to the sensitivity of the matter.
Fitch said the cost to the Spanish state of recapitalising
banks stricken by the bursting of a real estate bubble,
recession and mass unemployment could be between 60 and 100
billion euros ($75 and $125 billion).
An International Monetary Fund report, due to be published
on Monday, is expected to estimate Spanish banks' capital needs
at a lower figure of 40 billion euros, but market conditions
have deteriorated since that data was collected, officials said.
European shares and the euro EUR= fell on Friday amid
mounting concern over Spain following the Fitch downgrade.
While Spain would join Greece, Ireland and Portugal in
receiving a European bailout, officials said the aid would be
focused only on its banking sector, without taking the Spanish
state off the credit markets.
Any political conditions would be light, related to the
banks and would probably not add to the austerity measures and
structural economic reforms which Prime Minister Mariano Rajoy's
government has already put in place, EU and German sources said.
The European Commission and EU paymaster Germany both agreed
in principle last week that Spain should be given an extra year
to bring its budget deficit down below the EU limit of 3 percent
of gross domestic product because of a deep recession.
(Additional reporting by Luke Baker in Brussels, Andreas Rinke
in Berlin. Writing by Paul Taylor, editing by Mike Peacock)
Keywords: SPAIN BANKS/AID
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