Spain will ask for an estimated 40-100bn euros from Europe to keep its banks operating - but it may not know the extent of the crisis until mid June when two audits are completed.
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Spain will specify how much it needs by 21 June, when the reports are due, Reuters reported citing three unnamed EU sources. European states are believed to be in a position to refinance Spain by up to 100m euros. the International Monetary Fund has estimated it may take up to 80bn euros to rescue Spain's banks, many of which are crippled by bad loans in a failed property market.
During a conference call of eurozone's 17 finance ministers, Spain said it wanted aid but needed to see reports from independent consultants Oliver Wyman and Roland Berger before getting into specifics of any deal.
The timing is crucial as Greece goes to the polls on 17 June to elect a government to determine its future with Europe and the euro. Should anti-EU bailout politicians gain control, the ripple effects could be felt in Spain and worldwide.
It was not clear whether Spanish banks would receive the loans from the 440bn euros in the European Financial Stability Pact or whether they could tap the permanent European Stability Mechanism which comes into force in July.
Spanish banks, notably Bankia, have been floundering for weeks, resulting a chaotic atmosphere in the equity, bond and currency markets. Spanish residents, although suffering from 25 per cent unemployment - with 51 per cent of youth jobless - have turned to squatting, protests and begging to call attention to their plight. More than 4.7 million residents are unemployed and many have been evicted as they can no longer pay rent (see photo, left).
The sudden escalation of the Spanish banking crisis follows the nationalisation of lender Bankia. The deputy governor of the Bank of Spain reportedly told parliamentarians last week that 9bn euros were also needed to cover losses at nationalised banks CatalunyaCaixa and NovaGalicia.
The European Commission and Germany both agreed in principle last week that Spain should be given an extra year to bring its budget deficit down below the EU limit of 3 per cent of gross domestic product because of a deep recession.
"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, IMF deputy director of the monetary and capital markets department said in a statement.
Greece, Ireland and Portugal have already tapped the fund. Italy is volatile and Cyprus said it could not rule out a request for a bailout.
04 December 2010
31 May 2012