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Spain formally requests €100 billion rescue loan

Spain’s government views loan offer “very favourably”, according to letter sent to Jean-Claude Juncker.

Image: Rene Fluger Josef Horazny/Czech News Agency/Press Association Images

SPAIN FORMALLY requested a rescue loan of up to €100 billion from its eurozone partners in a letter released Monday.

No new figures were included in the letter, after reports by independent consultants last week said stricken Spanish banks could need up to €62 billion to survive a severe, three-year financial slump.

Spain’s government viewed the loan offer from its partners “very favourably,” Economy Minister Luis de Guindos said in a letter addressed to Eurogroup head Jean-Claude Juncker. De Guindos said Spain’s authorities would offer “all their help” in deciding the loan’s eligibility criteria, conditions, required measures and contract definition.

The aim was to finalize a memorandum of understanding in time for it to be discussed at a July 9 meeting of the Eurogroup, which groups the 17 eurozone finance and economy ministers. Spain’s economy minister confirmed in the letter that the money would be funnelled to needy banks through the state-backed Fund for Orderly Bank Restructuring (FROB).

De Guindos said the ministers should use as a “starting point” an IMF report on Spain’s banks, alongside the findings of international consultants Roland Berger of Germany and Oliver Wyman of the United States.

Their audits tested 14 top banking groups in a likely “baseline” scenario and a “stressed” outcome of a slumping economy and real estate sector. They found that in a stressed scenario lasting three years, the banks would need €51-62 billion in extra capital.

In a baseline case they would need just €16-26 billion.

‘Stress’

Earlier today, France’s Finance Minister Pierre Moscovici said that his government needs to find between €7 billion and €10 billion to plug the country’s public deficit. He said that he is waiting to see the official figures on that gap, but expects them to lie “somewhere in the middle” of those two amounts.

EU leaders are due to meet for a summit in Brussels this week to discuss the ongoing eurozone crisis.

The IMF chief last week warned that the euro is under “acute stress”. Christine Lagarde urged the eurozone leaders to consider issuing jointly issued debt – eurobonds – and to aid troubled banks directly.

Lagarde also suggested relaxing serious austerity conditions on countries that have received aid.

- (c) AFP, 2012, additional reporting by Susan Ryan

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