Spain's ailing banks 'only need £79bn'

 

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The Independent Online

Spain's ailing banks are unlikely to need all of the €100 billion (£79.25 billion) which was made available by the country's euro partners, Spanish economy minister Luis de Guindos said.

In a further indication that Spain's economic problems are not as acute as some in the markets have been fearing, Mr de Guindos also insisted that no additional austerity measures will be needed to meet the Spanish government's deficit-reduction target.

Spain is battling to avoid the same bailout fate as Greece, Ireland, Portugal and Cyprus.

Mr de Guindos said Spain's most troubled bank, Bankia, will get urgent aid, while two indebted Spanish regions appealed for emergency funding to deal with a crippling liquidity crunch.

Spain's banks have an estimated 184 billion euro (£145.93 billion) in problematic property loans and investments following the collapse of the market in 2008. The other 16 eurozone countries have set aside the rescue package to help troubled Spanish lenders.

"In principle, it looks like not all of (the 100 billion euro) will be used," Mr de Guindos told Onda Cero radio.

The minister said austerity policies being enacted by the government will be enough for Spain to meet its target of reducing the budget deficit to 6.3% of national income this year from 9% the previous year. The government has already unveiled a 65 billion euro (£51.5 billion) package of tax hikes and spending cuts.

"Spain has already set out a path which is sufficient for the problems we face," Mr de Guindos said.

He said he did not expect other eurozone countries to demand more economic reforms in Spain.

Spain is in a double-dip recession with a near 25% unemployment rate. Investors fearing the country may not be able to pay off its debts have charged high prices for loans - piling the pressure on to reduce its swollen deficit, cut central and regional government spending and clean up its banking system.

German chancellor Angela Merkel is due to visit Madrid on Thursday for talks with prime minister Mariano Rajoy. Her spokesman, Steffen Seibert, said today that Spain must push through its reform plans to improve the long-term prospects of its economy and alleviate market concerns.

He told reporters in Berlin: "We have said many times in the Spanish case ... that the path Spain has taken recently is remarkable.

"And that will - as in other countries, when the homework has been done, when the structure of the economy and the labour market has been improved - lead to that being reflected in interest rates."

Mr de Guindos predicted that the 100 billion euro in bank rescue funds would become available by early November, once the banks' restructuring plans are unveiled in the middle of this month.

However, he said an emergency advance loan of up to five billion euro (£3.96 billion) for Bankia, a leading bank that was nationalised in May, could be announced later today. Bankia has called for a total of 24 billion euro (£19 billion) in public aid.

Spain's heavily indebted regions are another concern for the government. The north-eastern region of Catalonia, which announced last week it would seek 5.02 billion euro (£3.97 billion) in aid from the central government, said it urgently needs money and won't be able to wait until September, as planned, El Pais reported.

Also, the regional government of Andalucia is asking for one billion euro (£792 million) in emergency funding, it said.

Though the Spanish government is reluctant to accept conditions that would likely be imposed as part of a wider bailout, foreign mdinister Jose Manuel Garcia Margallo signalled that his country is willing to surrender some degree of sovereignty as part of efforts to draw a line under the eurozone's financial crisis.

He said Spain hoped to make progress toward greater European banking, fiscal and political union during the meeting with Merkel.

"We need to move towards a United States of Europe," he said.

AP

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