"Not if, but when" for Spanish bailout, experts believe

Wed Apr 18, 2012 5:41am EDT
 
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By Luke Baker

BRUSSELS (Reuters) - Economic experts watching Spain don't know how much money will be needed or precisely when, but some are near certain that Madrid will eventually seek a multi-billion euro bailout for its banks, and perhaps even for the state itself.

Prime Minister Mariano Rajoy has repeatedly said Spain doesn't need or want an international bailout, and the European Union, which along with the IMF has already rescued Greece, Ireland and Portugal, also dismisses such talk.

But economists believe that Spanish banks will have to turn to the euro zone's rescue fund, the European Financial Stability Facility (EFSF), for help in covering losses caused by a property market crash which has yet to end.

Likewise, investors are fretting about how Rajoy's centre-right government can enforce deep austerity while reviving a recession-bound economy at the same time.

"They're going to need EFSF money to recapitalize the banking sector," said Carsten Brzeski, a senior economist at ING in Brussels. "I think we'll only see a real end to the Spanish misery if the real estate market stabilizes."

Madrid is likely to hold out for some time. "The underlying picture in Spain is dramatic, but is it dramatic in the way that it needs a bailout package tomorrow? No," Brzeski said. "But if you look ahead, let's say the next six months, I would not be surprised if they (the banks) have to get some kind of European support."

Market concerns about the euro zone's fourth largest economy have deepened in the past week. Yields on the government's 10-year bonds, which reflect the risk investors attach to owning Spanish debt, have risen above 6 percent, a level that has proved a trigger point for other troubled euro zone countries.

At the moment the EU is backing Madrid. Jean-Claude Juncker, who chairs the Eurogroup of euro zone finance ministers, said Spain was taking the necessary steps to get its economy back on track, despite a recession and unemployment at 24 percent.   Continued...

 
Spain's Prime Minister Mariano Rajoy speaks during question time at parliament in Madrid, April 11, 2012. REUTERS/Susana Vera