* Sources: euro zone finance ministers to hold conference
* Statement expected afterwards on Spanish aid request
* Spanish Deputy PM: No decision made, awaiting audit
* Fitch downgrades Spain 3 notches, says banks need 60-100
(Adds quote, details)
By Julien Toyer and Matthias Sobolewski
MADRID/BERLIN, June 8 Spain is expected to ask
the euro zone for help with recapitalising its banks this
weekend, sources in Brussels and Berlin said on Friday, becoming
the fourth country to seek assistance since Europe's debt crisis
Five senior EU and German officials said deputy finance
ministers from the single currency area would hold a conference
call on Saturday morning to discuss a Spanish request for aid,
although no figure for the assistance has yet been fixed.
Later the Eurogroup, which consists of the euro zone's 17
finance ministers, will hold a separate call to discuss
approving the request, the sources said.
"The announcement is expected for Saturday afternoon," one
of the EU officials said.
The dramatic development comes after Fitch Ratings cut
Madrid's sovereign credit rating by three notches to BBB on
Thursday, highlighting the Spanish banking sector's exposure to
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 needed to be reached before a
Greek election on June 17 which could cause market panic and
increase the threat of Athens leaving the euro zone if left-wing
parties opposed to Greece's EU/IMF bailout win.
The EU and German sources spoke to Reuters on condition of
anonymity due to the sensitivity of the matter.
Spain's deputy prime minister, Soraya Saenz de Santamaria,
said the government needed to have at least a preliminary
estimate of how much extra capital the banks needed before
taking a decision.
The International Monetary Fund is expected to announce
imminently the results of its own audit.
"It's important to respect the proceedings because it's
important to know the ground," she told reporters, while not
denying that the Eurogroup would hold a call on Spain's needs.
"Before taking any kind of decision one should at least have
a first estimate of the ground and the ground means figures."
The European Commission's spokesman on economic affairs said
Spain had made no request for aid but the euro zone stood ready
"If such a request were to be made, the instruments are
there, ready to be used, in agreement with the guidelines agreed
in the past," Amadeu Altafaj said. "We are not at that point."
European Central Bank Vice President Vitor Constancio said
the call for assistance was expected soon.
"It is expected that Spain will formulate a request for aid
exclusively for banks recapitalisation ... there has to be an
expression of will to have such a programme for Spanish banks,
and one may hope it happens rather swiftly," Constancio said on
If a request is made, Spain is expected to ask for help from
the euro zone's 440 billion euro bailout mechanism, known as the
European Financial Stability Facility. The amount will depend on
the IMF audit and a separate report due by June 21 from two
independent assessors, Oliver Wyman and Roland Berger.
The process is likely to involve bonds from the EFSF being
injected into Spanish banks with no new capital raised, a euro
zone official said on Friday. The bonds can then be used as
collateral in operations with the European Central Bank,
allowing the banks to access ECB liquidity. [ID:nL5E8H87SD]
Financial industry sources told Reuters on Thursday that the
IMF report had estimated Spanish banks' minimum capital needs at
40 billion euros ($50 billion), rising to 90 billion euros for a
Officials in Spain said the parameters for the IMF and the
private-sector audits were effectively the same, meaning Spain
could make the request for aid on the basis of the IMF figures
rather than having to wait for the other assessment.
The euro zone has been under strong pressure from the United
States, China, Canada and other major partners to take swift,
decisive action to prevent the debt crisis spreading and causing
greater damage to the world economy.
U.S. President Barack Obama said European leaders appeared
to be moving in the right direction, but he also emphasised that
he was being careful not to tell Europe what to do.
"They understand the seriousness of the situation and the
urgent need to act," Obama told a news conference.
Speaking in Berlin, German Chancellor Angela Merkel said she
was not pressing any country to take a bailout, saying it was up
to Spain to decide what it wanted to do: "It's down to the
individual countries to turn to us," she said.
"That has not happened so far, and therefore (we) will not
exert any pressure."
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 60-100 billion
euros ($75-$125 billion) - or 6 to 9 percent of Spain's gross
domestic product. The higher figure would be in a stress
scenario equivalent to Ireland's bank crash.
Other stories on euro zone crisis [ID:nL5E7LR1WL]
Spain's Rajoy tries to lead after rock start [ID:nL5E8H55RO]
Too-big-to-fail Spain ponders bank rescue [ID:nL3E8H7AC2]
BREAKINGVIEWS-No shame for Spain [ID:nL5E8H83R4]
Euro zone crisis in graphics r.reuters.com/hyb65p
European shares and the euro EUR= fell amid mounting
concern over Spain following the Fitch downgrade although the
Spanish stock market climbed nearly two percent on the prospect
of help for the banks. [.EU]
While Spain would join Greece, Ireland and Portugal in
receiving a European financial rescue, officials said the aid
would be focused only on its banking sector, without taking the
Spanish state out of credit markets.
That would be crucial to avoid overstraining the euro zone's
rescue funds, which would struggle to cover Spanish government
borrowing needs for the next three years plus possible
additional assistance for Portugal and Ireland. [ID:nL3E8H7AC2]
"I think they're trying to get a lighter support package,
where the money is headed to the banks and not for financing the
fiscal deficit," said Vincent Chaigneau, head of rates strategy
at Societe Generale. "But you need to know the details, the size
of the programme and who participates."
The sudden escalation of the Spanish banking crisis,
dramatised by last month's hasty nationalisation of troubled
lender Bankia (BKIA.MC), has contributed to raising Italy's
borrowing costs towards danger levels as well as Spain's.
Conditions in the plan 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.
A "bailout lite" would help salve Spanish pride. Spain is
the world's 12th largest economy and No. 4 in the euro zone. EU
and German officials have cited national pride as a barrier to
requesting a full assistance programme.
The European Commission and 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 and Jan Strupczewski in
Brussels, Andreas Rinke in Berlin and Jesus Aguado and Fiona
Ortiz in Madrid; Writing by Paul Taylor and Luke Baker; Editing
by Mike Peacock and Alastair Macdonald)
Keywords: SPAIN BANKS/AID
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