Beleaguered Spain poised to request EU bailout

Pressure grows on Madrid to accept external help but ministers insist there are no imminent plans

Spain looked set last night to become the fourth eurozone state to seek a bailout from the European Union and the International Monetary Fund.

Reports were circulating that Madrid will make a request for external help to prop up the country's tottering banking sector as early as today, when eurozone finance ministers hold a conference call this afternoon. The Dutch Finance Minister, Jan Kees de Jager, said that such a momentous discussion could not be ruled out and also described the Spanish situation as "urgent".

However, the Spanish government denied that there are any imminent plans to request a bailout. The Deputy Prime Minister, Soraya Saenz de Santamaria, insisted that nothing would happen until a series of audits of the Spanish banking system have reported later this month. "Before taking any kind of decision one should at least have a first estimate of the figures" she told reporters in Madrid.

The European Commission, which would partly supervise a European bailout of Spanish banks, said Madrid had not asked for help, but also stressed that its resources were ready to be deployed if required. "If such a request were to be made, the instruments are there, ready to be used" said the Commission's economic affairs spokesman.

The German Chancellor, Angela Merkel, denied yesterday that her government was exerting any pressure on Spain to accept a bailout. She said: "It's down to the individual countries to turn to us. That has not happened so far, and [we] will not exert any pressure".

Yet, behind the scenes, European policymakers have spoken of the need for Spain to have a bailout agreement in place before Greece holds fresh elections on 17 June, which is likely to cause another outbreak of market panic if the anti-bailout parties strengthen their hand in Athens.

Barack Obama added his voice to those calling for prompt action in Europe yesterday. The US President warned that European leaders need to stabilise the continent's financial system and inject capital into weak banks "as soon as possible".

If Spain does request help, the money would come from either the temporary €440bn European Financial Stability Facility or the permanent €500bn European Stability Mechanism, which is expected to be introduced in July.

In a reflection of heightened market fears over Spain's solvency, 10-year borrowing costs crept upwards yesterday, rising to 6.24 per cent, a level widely regarded as unsustainable. There were also signs of pressure spilling over to Italy, the eurozone's next most vulnerable economy, where 10-year borrowing costs rose to 5.77 per cent. There was also evidence yesterday that the eurozone crisis is dragging down even Germany, the single currency's strongest economy. German exports fell by 1.7 per cent in April, a direct result of weak sales in the rest of Europe, where the country does 60 per cent of its trade.

The IMF will report on the size of the capital hole in Spain's banking sector on Monday. Reports have suggested that it will identify a shortfall of between €40bn and €90bn. The credit rating agency Fitch, which downgraded Spanish debt this week to BBB, has estimated that Spain's total bailout needs could be closer to €100bn.

The Spanish government has been resisting a national bailout because of the onerous conditions and regular inspections that have been attached to the EU/IMF rescues of Greece, Ireland and Portugal. Instead Madrid has been lobbying for the funds to be channelled directly to its banking sector. But this has met with resistance from senior German politicians who have insisted that only countries, rather than banks, can be bailed out by common European resources. Officials in Brussels have been attempting to broker a compromise, whereby the Spanish government would accept the money, but with minimal conditions attached.

The government of Mariano Rajoy has been fighting hard to slash the budget deficit, which stood at 8.9 per cent of GDP in 2011. In March, ministers set a target of reducing the deficit to 5.3 per cent of GDP by the end of 2012.

But Spain is expected to miss this goal, in large part because the economy is shrinking so fast. It is forecast by the European Commission to contract by 1.8 per cent this year.

The government is also under growing pressure from the street, where social discontent is rising. Unemployment has hit 24 per cent and joblessness among the young is above 50 per cent.

Spanish bailout: Key decision-makers

Mariano Rajoy, Spanish Prime Minister and leader of the centre right People's Party

An old political hand, having been the deputy of previous prime minister Jose Maria Aznar, he has put together a political team which is a blend of youth and financial experience.

Luis de Guindos, Economy minister

De Guindos was in Brussels this week for talks with the European Commission, and a former CEO of Lehman Brothers in Spain and Italy.

Cristobal Montoro

Economist Montoro has been put in charge of slashing Spain's 8.9 per cent budget deficit in her role as treasury minister. Also the loose cannon who admitted last week that the financial markets are "essentially shut" to Spain, inviting market panic.

Soraya Saenz de Santamaria, Deputy prime minister

The youngest member of the Madrid government, she is also said to be the one who wields the most power, short of Rajoy. She was working yesterday to play down reports of Spain requesting a bailout. Held talks with IMF chief Christine Lagarde in Washington at the end of last month - perhaps when the two sides began to put a deal together.

Rescue plans: The options on the table for madrid

The Spanish government wants to avoid receiving direct assistance in the way that Greece, Portugal and Ireland did. Rather, it would like Spanish banks to be directly recapitalised.

Limited bailout Under this option it is thought that a minimum of €40bn is needed to recapitalise the banks.

Full-scale bailout The beleaguered Bankia is thought to require at least €23bn alone and there are doubts that €40bn would be enough to assuage fears in the markets. Some analysts believe as much as €100bn could be needed.

No bailout The government could theoretically dismisses a bailout altogether, but that is looking increasingly unlikely.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Joe Cocker performing on the Stravinski hall stage during the Montreux Jazz Festival, in Montreux, Switzerland in 2002
musicHe 'turned my song into an anthem', says former Beatle
News
Clarke Carlisle
sport
Sport
Chelsea manager Jose Mourinho
footballLatest score and Twitter updates
Arts and Entertainment
David Hasselhof in Peter Pan
theatreThe US stars who've taken to UK panto, from Hasselhoff to Hall
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Life and Style
Approaching sale shopping in a smart way means that you’ll get the most out of your money
life + styleSales shopping tips and tricks from the experts
News
newsIt was due to be auctioned off for charity
Life and Style
A still from a scene cut from The Interview showing North Korean leader Kim Jong-un's death.
tech
Environment
Sir David Attenborough
environment... as well as a plant and a spider
Voices
'That's the legal bit done. Now on to the ceremony!'
voicesThe fight for marriage equality isn't over yet, says Siobhan Fenton
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Austen Lloyd: Regulatory / Compliance / Exeter

Excellent Salary: Austen Lloyd: Exeter - An excellent opportunity for a Solici...

Ashdown Group: IT Support Technician - 12 Month Fixed Term - Shrewsbury

£17000 - £20000 per annum: Ashdown Group: IT Helpdesk Support Technician - 12 ...

The Jenrick Group: Maintenance Planner

£28000 - £32000 per annum + pension + holidays: The Jenrick Group: Maintenance...

The Jenrick Group: World Wide PLC Service Engineer

£30000 - £38000 per annum + pesion + holidays: The Jenrick Group: World Wide S...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'