MADRID (Reuters) – Spain’s banks would need 51 62 billion euros ($64 78 billion) in extra capital to weather a serious downturn in the economy, less than a 100 billion euro aid package offered by the euro zone, independent audits showed on Thursday.
BRUSSELS/MADRID (Reuters) – Euro zone finance ministers agreed on Saturday to lend Spain up to 100 billion euros ($125 billion) to shore up its teetering banks and Madrid said it would specify precisely how much it needs once independent audits report in just over a week.
Madrid’s economy minister said a formal request would be made in days for the bailout, which was agreed two weeks ago.
Many in the markets see the package as a mere prelude to a full program for the Spanish state, which Madrid vehemently denies it will need.
Spain’s financial plight took centre stage a week before a European Union summit tackles long term plans for closer fiscal and banking union in a bid to strengthen the euro’s foundations, after bailouts for Greece, Ireland and Portugal failed to end a 2 1/2 year old debt crisis.
Important institutions of the EU include the European Commission, the Council of the European Union, the European Council, the Court of Justice of the European Union, and the European Central Bank.
To pave the way, the leaders of Germany, Italy, France and Spain will meet in Rome on Friday.
“We are clearly seeing additional tension and acute stress applying to both banks and sovereigns in the euro area,” International Monetary Fund chief Christine Lagarde, who attended the Luxembourg meeting, told reporters.
Based on International Monetary Fund estimates of 2008 GDP and purchasing power parity among the various currencies, the eurozone is the second largest economy in the world.
“With that in mind, the IMF believes that a determined and forceful move towards complete European monetary union should be reaffirmed.”.
MADRID — Spain said Thursday its crisis torn banks need up to 62 billion euros ($78 billion) to survive a severe financial slump, far less than the maximum foreseen in a eurozone rescue deal.
National Bank will receive the largest capital injection ofabout 7 billion euros, followed by Piraeus, which will get about4.7 billion euros, Thomopoulos said.
Spain’s three biggest banks would not need extra capital even in a stressed scenario, it said.
In Luxembourg, the finance ministers decided Spain should initially apply to the euro zone’s temporary rescue fund, the European Financial Stability Facility, with the loan taken over by the permanent bailout fund the European Stability Mechanism (ESM) once it is up and running after July 9.
“The financial assistance will be provided by the EFSF until the ESM becomes available, and then it will be transferred to the ESM,” Jean Claude Juncker, who chairs the Eurogroup of finance ministers, told a news conference.
“We would expect the Spanish authorities to put forward a formal request for financial assistance by next Monday,” he said.
Such a solution should avert a problem which had scared investors: debt issued by the ESM must be paid back first in case of a Spanish default, relegating private creditors lower in the pecking order.
Sothey raised 2.2 billion versus a 2 billion target, so they canraise the money,” said Lloyds Bank strategist AchilleasGeorgolopoulos. “Then the (question is), are the yields threatening for themedium term.
Yields on 5 year paper rose to a 15 year high of 6.07 percent, a level regarded by analysts as unaffordable for any prolonged period.
“They raised 2.2 billion versus a 2 billion target, so they can raise the money,” said Achilleas Georgolopoulos, a strategist at Lloyds in London.
But still they can continue for a few months to fund at these levels.
The finance ministers also signaled there may be some leeway for Greece, following the formation of a coalition of mainstream parties committed to the country’s 130 billion euro EU/IMF bailout but determined to renegotiate some of its terms.
Athens will ask lenders for two more years to hit fiscal targets and an extension to unemployment benefits as it seeks to soften the punishing terms of the bailout that saved the country from bankruptcy.
Greece’s euro zone partners, in particular paymaster Germany, have offered modifications but no radical re write of the conditions attached to the lifeline agreed in March.
Juncker said nothing would be decided until the troika of EU, IMF and European Central Bankers had returned to Athens for a look at the books, starting on Monday.
The German government and opposition reached a deal that will allow parliament to approve the ESM next week, but Germany’s top court may delay the rescue fund’s start date, saying it needed time to study the treaty.
The parliamentary floor leader of Chancellor Angela Merkel’s conservatives appeared to dash French and southern European hopes of nudging Berlin towards common euro area debt issuance, saying there would be no mutualisation of debt in Europe.
Gross borrowing was 324.6 billion euros in May,up from 316.9 billion euros in April.
Italian Prime Minister Mario Monti suggested, on the sidelines of this week’s G20 summit, using the euro zone’s rescue funds to buy the bonds of Spain and Italy in the secondary market to bring down their borrowing costs.
Monti hosts Spanish premier Mariano Rajoy, Germany’s Merkel and French President Francois Hollande in Rome on Friday and is also expected to raise the idea there.
Merkel has played down the proposal, which investors said might be counter productive unless the ECB stepped in decisively in support.
Any European bond buying would come with strings attached, equivalent to the sort of bailout programs that Rome and Madrid are trying to avoid because of the stigma attached.
Given the limited capacity of the temporary EFSF and planned permanent ESM rescue funds, with at most 500 billion euros available, a senior EU source said such intervention would make sense only if the ESM had a banking license enabling it to borrow from the ECB.
Bankia has requested a capital injection from the state of 19 billion euros, while financial sources told Reuters the needs for the three others would top 20 billion euros.
(Additional reporting by Leigh Thomas in Paris, Nigel Davies and Paul Day, John O’Donnell in Brussels, Annika Breidthardt, Robin Emmott, Charlie Dunmore and Axel Threlfall in Luxembourg.
Brad Thomson is a business journalist based in Melbourne, Australia. Brad has a passion for financial markets and breaking news stories and loves writing about business news, stock market, and economic opinions that matters most to its audience. Brad spends a lot of time discovering and researching latest financial markets and industry news stories in order to make sure the latest and greatest stories are brought to you first on BigBoardNews.com.