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5:41am UK, Sunday June 10, 2012
Spain’s finance minister has confirmed his country will ask for European financial aid for its ailing banking system.
Madrid insists the eurozone support for its banks is not a rescue, and not all banks need money.
Luis de Guindos told reporters the country has not yet made a formal loan request – but a statement from the eurogroup of finance ministers said they expected one “shortly”.
The statement added that eurozone partners were “willing to respond favourably” to Spain’s appeal and would agree to lend it up to 100bn euros (£81bn).
Madrid has said it wants to wait until June 21 for the publication of two independent audits of its banking system before it decides how much money is needed.
Both Mr de Guindos and Christine Lagarde, managing director of the International Monetary Fund (IMF), have said the amount of cash pledged to Spain should be enough to reassure the markets that the problem is now in hand.
European finance ministers will demand Spain carry out reforms in its financial sector in exchange for the financial aid – but no further austerity measures will be required.
The eurogroup said it recognises the major steps Spain has already taken towards restructuring its economy.
In a sign of how the the global financial machinery is finally grinding into action, the IMF has been invited to oversee the implementation of the deal.
Spain’s acceptance of aid for its banks is a big embarrassment for prime minister Mariano Rajoy, who said just 10 days ago that the banking sector would not need a bailout.
But Mr Rajoy has admitted his government cannot fund the estimated 40bn euro (£32bn) bill to prop up the country’s banks.
On Friday, the IMF rushed to publish its own analysis that said Spain’s banks need at least 37bn euro (£30bn) to cope with the slump in property values.
Unemployment among young Spanish people is above 50%
European and IMF officials are reportedly keen to draw a line under speculation about Spain’s future before next weekend’s general election in Greece, which could see it leave the euro.
Spain is already facing growing opposition to austerity with the eurozone’s highest unemployment rate.
Almost 25% of workers are out of a job – and the figure is above 50% among young Spaniards.
The stress tests carried out by the IMF showed that while Spain’s top two banks – BBVA and Banco Santander – remain solid, the rest of its banking sector is struggling.
On Friday, US President Barack Obama urged Europe to act swiftly to tackle its banking crisis or pay a heavy price.
US Treasury secretary Timothy Geithner welcomed the Spanish bailout, calling it an important step toward financial union.