June 9, 2012 / 11:01 AM / 6 years ago

WRAPUP 2-Euro zone ministers to consider Spanish bailout

* Euro zone finance ministers hold conference call Saturday

* Statement expected afterwards on Spanish aid request

* Juncker says quick action needed

* IMF advises seeking well over 40 billion euros

By Justyna Pawlak and Erik Kirschbaum

BRUSSELS/BERLIN, June 9 (Reuters) - The euro zone’s senior finance minister urged a rapid resolution of Spain’s debt crisis on Saturday before a meeting where he will lead discussions on a bailout of the country’s teetering banks.

Several EU sources told Reuters on Friday that Madrid was expected to ask the currency bloc for help with recapitalising its banks this weekend, becoming the fourth country to seek assistance since Europe’s debt crisis began.

““There will have to be a quick solution,” Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, told German radio.

Juncker’s spokesman said the finance ministers would hold a conference call at 4 p.m. Brussels time (1400 GMT).

Asked if he expected Spain to request help, Swedish Prime Minister Fredrik Reinfeldt told public service radio: “I think that is everybody’s assessment. There is even talk about amounts up to 80 billion euros.”

It is not clear whether bailout numbers will be finalised on Saturday but the International Monetary Fund gave a clear guide to what it thought was needed, saying that under a stress scenario a number of Spanish banks would need to increase capital by 40 billion euros ($50 billion) in total. It advised seeking significantly more than that.

“Going forward, it will be critical to communicate clearly the strategy for providing a credible backstop for capital shortfalls - a backstop that experience shows it is better to overestimate than underestimate,” Ceyla Pazarbasioglu, Deputy Director of the IMF’s Monetary and Capital Markets Department, said.

Euro zone policymakers are eager to shore Spain’s position up before June 17 elections which could push Greece closer to a euro zone exit and unleash a wave of contagion.

Madrid had said it would wait for the IMF audit and a separate report due by June 21 from two independent assessors, Oliver Wyman and Roland Berger, before acting.

But 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.

Prime Minister Mariano Rajoy held talks with socialist opposition chief Alfredo Perez Rubalcaba.

“They’ve talked in the last hours - I don’t know the content of that conversation, but yes they did talk,” socialist member of parliament Eduardo Madina told Cadena S e r radio.

Bundesbank president Jens Weidmann said Spain should turn to the European Financial Stability Facility (EFSF) rescue fund if it could not afford the bank recapitalisation bill.

In an interview to appear in Sunday’s Welt am Sonntag newspaper, Weidmann said: “If Spain sees itself overwhelmed by financing needs, it should use the instruments that were created for that.”

The ECB could not be expected to fill a policy vacuum, he said. The bank’s vice president, Vitor Constancio, said he hoped the call for assistance from Madrid would come swiftly.


The race to resolve the banks’ troubles comes after Fitch Ratings cut Madrid’s sovereign credit rating by three notches to BBB, highlighting the Spanish banking sector’s exposure to bad property loans and to contagion from Greece’s debt crisis.

It 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). The higher figure would be in a stress scenario equivalent to Ireland’s bank crash.

Italy could yet get dragged in too. Its industry minister, Corrado Passera said the economic situation in Italy had improved since the end of 2011, but remained critical.

“Europe was more disappointing than we had expected, it was less capable of tackling a relatively minor problem such as Greece,” Passera told a conference.

If a request is made, Spain is expected to ask for help from the 440 billion euros EFSF.

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, allowing the banks to access ECB liquidity.

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.

Conditions in the plan would be related to the banks and would probably not add to the austerity measures and structural economic reforms which 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.

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