Several EU sources told Reuters on Friday that Madrid was expected to ask the currency bloc for help with recapitalizing 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 finalized 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 Ser 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 recapitalization 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.
EFSF FUNDS
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 recapitalizing 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.
