Spain must tell Europe its plans for Bankia: EC

Thu May 31, 2012 3:40am EDT
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By Sonya Dowsett

MADRID (Reuters) - Spain must lay out plans for nationalized lender Bankia (BKIA.MC: Quote) to the European Commission (EC), a spokesman for the Commission said on Thursday, adding a domestic solution to the country's bank crisis would be better than a European rescue.

Spain's centre-right government has so far failed to clearly say how it plans to finance a 23.5 billion euro ($29 billion) rescue of the country's fourth-biggest lender, leaving markets confused and driving the country's borrowing costs to levels at which Ireland and Portugal sought international bailouts.

Prospects that Spain will not be able to handle losses at its banks have pummeled shares and commodities, while pushing the euro to its lowest in almost two years against the dollar.

"What we need first of all is for the Spanish government to tell us its restructuring plans for Bankia, what options it is considering," said European Commission spokesman Amadeu Altafaj in a radio interview.

"From there, we will study the plans and see whether they comply with requirements for public aid."

Spain should carry out the refinancing of its banking sector, laid low by a decade of unsustainable lending during a property boom, by market mechanisms or government funds, rather than a European rescue which would have negative connotations, Altafaj said.

"The sooner uncertainties are removed the better," he added.

The European Commission offered direct aid from a euro-zone rescue fund to recapitalize distressed banks on Wednesday and proposed giving Spain more time to reduce its budget deficit.   Continued...

The headquarters of nationalised lender Bankia is seen beside a red traffic light in Madrid May 30, 2012. REUTERS/Sergio Perez