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A Spanish flag flies in front of Bankia's headquerters in Madrid Daniel Ochoa de Olza/AP/Press Association Images
Eurozone

Spain bailout could reach €100billion, say sources

The IMF warned earlier today that the country’s banks could require up to €40billion in recapitalisation alone.

Updated, 16.12

EUROZONE FINANCE MINISTERS are eyeing “up to 100 billion euros” in aid for Spain’s distressed banks, a senior EU official has said.

The ministers will demand that Spain carry out reforms in its financial sector in exchange for becoming the fourth European country to require a bailout, a senior EU official told AFP.

Seventeen Eurogroup finance ministers are holding a conference call which began at around 2pm this afternoon, according to sources.

Asked whether the 17-nation eurozone would set conditions on a rescue, the official replied: “Conditions to the Spanish government but these will only entail a clean-up of the financial sector.”

The developments appear to confirm reports earlier today that the Spanish government was set to formally request EU assistance.

Reuters said a conference call would be held this morning to discuss a Spanish request for extra funding, which would be formally approved later by eurozone finance ministers.

The Spanish government appears resigned to the need for a bailout. Deputy prime minister Soraya Saenz de Santamaria acknowledged yesterday that the country could decide soon whether to request assistance.

Commenting on the reports that a conference call will be held today, she said that “no meeting is planned” but would not confirm or deny whether some kind of communication would take place.

The IMF yesterday said that Spain’s banks could require €40billion of recapitalisation in an “adverse scenario”, with extra funding required for restructuring.

‘Vulnerable’

Releasing the results of an assessment of Spain’s financial sector, it warned of “important vulnerabilities”. It said the largest banks would have sufficient funding even if economic conditions decline further, but some would need assistance.

There has been speculation especially over the future of Bankia, which reportedly alone could need €23billion.

“In recent years a gradual approach to taking corrective action allowed weak banks to continue to operate to the detriment of financial stability,” the IMF said in a statement.

Ceyla Pazarbasioglu, the IMF official who led the assessment, said:

The extent and persistence of the economic deterioration may imply further bank losses. Full implementation of reforms, as well as establishing a credible public backstop, are critical for preserving financial stability going forward.

- Additional reporting from AP and AFP (© AFP, 2012)

Read: ‘No news’ on potential Spanish request for bailout, say Brussels and Berlin>

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