By Martin Kelly
Spain’s Economy Minister Luis de Guindos has denied a planned 100bn injection from the Eurozone aimed at shoring up the country’s struggling banks, is a rescue package.
The Minister was responding to reports that the funds will be handed over after an emergency meeting of Eurozone leaders this weekend.
Mr de Guindos confirmed that Spain will submit a formal request for help but insisted that the loan was targeted at the country’s financial system and not at its economy.
“This is a loan which is given in very favourable conditions, which will be determined in the next few days. But they are very favourable – much more favourable than the market ones,” he said.
Spain’s request for assistance comes less than two weeks after Prime Minister Mariano Rajoy said the Iberian nation, the fourth largest economy in the Eurozone, would need no external aid to recapitalise its ailing lenders.
The funds will be paid out of the European Financial Stability Facility and the European Stability Mechanism.
News of the cash injection follows rising unemployment and the slashing of the Spanish credit rating with bonds almost at junk status.
The Spanish Government has already injected €34bn into its struggling banking sector, however analysts estimate that a further €40bn will be necessary to avoid a catastrophe.
Although described as a loan, with less severe restrictions, the capital injection agreed by other Eurozone leaders is seen by many as a bailout. Spain follows Ireland, Greece and Portugal in requiring assistance.
A statement issued on behalf of the Eurozone group said:
“The Eurogroup supports the efforts of the Spanish authorities to resolutely address the restructuring of its financial sector and it welcomes their intention to seek financial assistance from euro area Member States to this effect.
“The Eurogroup has been informed that the Spanish authorities will present a formal request shortly and is willing to respond favourably to such a request.”
The loan will be paid to the Fund for Orderly Bank Restructuring (F.R.O.B.), acting as agent of the Spanish government.
The loan will be conditional on Spain making “structural reforms” to its financial sector, progress of which will be “closely and regularly reviewed” by the IMF.
Spanish banks were left with billions of euros of toxic loans after the country’s property bubble burst and the recession took hold.
Spanish property prices have fallen by one quarter making it difficult for banks to offload repossessed properties. Nearly half of Spaniards under 25 are jobless and tens of thousands of families have been evicted from their homes after falling behind on their mortgages.
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