Eurogroup confirms up to 100-bln-euro aid ready for Spain’s banks

Spain's Economy Minister Luis de Guindos gestures during a news conference at the Ministry of Economy and Competitiveness in Madrid, Spain, Saturday, June 9, 2012. Spain asked for a European rescue of its troubled banks holding an emergency conference call with European finance ministers, a move that turned the nation into the fourth from the 17-nation eurozone to seek outside help since the continent's financial crisis erupted two years ago. <Photo=AP/NEWSis>

BRUSSELS/MADRID, June 9 (Xinhua) — Eurozone finance ministers confirmed on Saturday that the single-currency area is ready to offer up to 100 billion euros (about 125 billion U.S. dollars) in financial aid to rescue Spain’s ailing banking sector.

“The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to 100 billion euros in total,” the Eurogroup said in a statement on the European Commission’s website after an emergency conference call of finance ministers.

“The financial assistance would be provided by the EFSF/ESM for recapitalisation of financial institutions,” the Eurogroup added.

The Eurogroup also confirmed that it has been informed that “the Spanish authorities will present a formal request shortly” and the euro area “is willing to respond favourably to such a request.”

It said that it “supports the efforts of the Spanish authorities to resolutely address the restructuring of its financial sector and it welcomes their intention to seek financial assistance from euro area Member States to this effect.”

Following the formal request, the European Commission will provide an assessment in liaison with the European Central Bank (ECB), the European Banking Authority (EBA) and the International Monetary Fund (IMF), and a proposal for the necessary policy conditionality for the financial assistance, said the Eurogroup statement.

The Eurogroup also praised efforts by the Spanish government to “implemented significant fiscal and labour market reforms and measures to strengthen the capital base of the Spanish banks.”

“The Eurogroup is confident that Spain will honour its commitments under the excessive deficit procedure and with regard to structural reforms, with a view to correcting macroeconomic imbalances in the framework of the European semester,” said the eurozone finance ministers.

“Progress in these areas will be closely and regularly reviewed also in parallel with the financial assistance,” they added.

Shortly before the Eurogroup announcement, Spanish Economy Minister Luis de Guindos told reporters in Madrid that “The Spanish government declares its intention of seeking European financing for the recapitalization of the Spanish banks that need it.”

De Guindos noted that those money are not a bailout, but a loan with favorable conditions for the banks. However, all media have labeled this loan as ‘bailout’.

De Guindos pointed out that this money is to cover recapitalization needs. It will also allow the banks to have a security margin.

He added that conditions will be applied only to the banking and financial system. There will not be new budget cuts.

De Guindos described the terms of the rescue loan “very favourable” compared with market rates and the funds will be channelled through Spain’s bank fund, the Fund for Orderly Bank Restructuring (FROB).

The minister stressed the difference between this forthcoming financial assistance program. “What is being requested is financial assistance. It has nothing to do with a rescue,” he told reporters at the  press conference.

“The conditions will be applied to the banks, not Spanish society,” he added, arguing that the agreement showed the “absolute commitment” of member states to the future of the single currency.

This echos the Eurogroup statement which says that “the policy conditionality of the financial assistance should be focused on specific reforms targeting the financial sector, including restructuring plans in line with EU state-aid rules and horizontal structural reforms of the domestic financial sector.

The decision to seek aid was announced a day after the IMF issued a 77-page report on the Spanish banking sector that found it was suffering through a crisis “unprecedented in its modern history.”

IMF officials recommended new capital injections of at least 40 billion euros, but they noted the weakest banks’ needs “would be larger than this” once all bad loans were accounted for and restructuring costs taken into account.

The IMF would be invited to support the implementation and monitoring of the financial assistance with regular reporting, eurozone finance ministers said in the statement.

In a statement issued on its website late Saturday, the European Commission welcomed the decision by the Spanish government to request the support and the Eurogroup’s positive response to the request.

“The Commission is ready to proceed swiftly with the necessary assessment on the ground, in close liaison with the ECB, EBA and the IMF, and to propose appropriate conditionality for the financial sector,” European Commission President Jose Manuel Barroso and Commissioner for Economic and Financial Affairs Olli Rehn said in the statement.

Barroso and Rehn also expressed their confidence that Spain can regain market confidence with “this thorough restructuring of the banking sector, together with the on-going determined implementation of structural reforms and fiscal consolidation.” <Xinhua>

news@theasian.asia

Search in Site