Spain to seek bank aid as borrowing costs soar

Fri Jun 22, 2012 9:07am EDT
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By Jan Strupczewski and Julien Toyer

LUXEMBOURG/MADRID (Reuters) - Independent auditors said Spanish banks may need up to 62 billion euros in extra capital, to be filled mostly by a euro zone bailout, after Spain's medium-term borrowing costs spiraled to a euro-era record on Thursday.

Euro zone finance ministers met in Luxembourg to discuss how to channel up to 100 billion euros ($126 billion) in aid to Spanish lenders weighed down by bad debts from a burst property bubble. Madrid's economy minister said a formal request would be made in days for the bailout, which was agreed two weeks ago.

Many in the markets see the package as a mere prelude to a full program for the Spanish state, which Madrid vehemently denies it will need.

Spain's financial plight took centre stage a week before a European Union summit tackles long-term plans for closer fiscal and banking union in a bid to strengthen the euro's foundations, after bailouts for Greece, Ireland and Portugal failed to end a 2-1/2-year old debt crisis.

To pave the way, the leaders of Germany, Italy, France and Spain will meet in Rome on Friday.

"We are clearly seeing additional tension and acute stress applying to both banks and sovereigns in the euro area," International Monetary Fund chief Christine Lagarde, who attended the Luxembourg meeting, told reporters.

"With that in mind, the IMF believes that a determined and forceful move towards complete European monetary union should be reaffirmed."

Two independent audits by consultants Roland Berger and Oliver Wyman found that Spanish banks would need between 51 and 62 billion euros in extra capital to weather a serious downturn in the economy and new losses on their books.   Continued...

Greece's Finance Minister George Zanias arrives at an eurozone finance ministers meeting in Luxembourg June 21, 2012. Euro zone finance ministers and officials meet on Thursday to discuss a bailout for Spanish banks and the way ahead for Greece's emergency lending programme. REUTERS/Francois Lenoir