No austerity condition attached to bailout package: Spain

Spain will shortly make a request for financial assistance from eurozone which had agreed to provide a 100 billion-euro ($125 billion) bailout package that comes with conditions - not necessarily austeiry measures -attached to the country’s banking sector.

“The Spanish government will make an application for assistance from the European bailout fund for the recapitalisation of its banks,” Spanish Economy Minister Luis de Guindos said ending weeks of uncertainty about whether Madrid will accept a bailout.

The government of Prime Minister Mariano Rajoy until now had ruled out the need for a bailout and insisted that it will manage the crisis in the banking sector with its own resources.

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[caption id=“attachment_339438” align=“alignleft” width=“380” caption=“The government of Prime Minister Mariano Rajoy until now had ruled out the need for a bailout and insisted that it will manage the crisis in the banking sector with its own resources. Reuters”]  [/caption]

Spain will become the fourth eurozone nation to receive a relief package from the EU and the International Monetary Fund after Greece, Ireland and Portugal since the outbreak of the euro-zone sovereign debt crisis two years ago.

Unlike the previous bailouts, Spain will not be subjected to austerity measures or structural reforms usually associated with a bailout and the conditions attached will be restricted to the banking sector only.

“The assistance and the conditions attached to it are not for the whole nation, but entirely for the banking sector,” de Guindos said.

The bailout became necessary to prop up the Spanish banks, which were crippled by the huge debts accumulated as a result of the collapse of the property boom and the recession that followed.

In return for the assistance, Spain will have to make commitments that it will drastically reform the banking sector. It also will have to present concrete plans to restructure the ailing financial institutions.

In an emergency conference call on Saturday evening, finance ministers of the euro-zone nations offered Spain up to 100 billion euros to stabilise its banks

The rescue loan will be large enough to cover “all possible capital requirements,” a statement by the euro-zone finance ministers said. .

German Finance Minister Wolfgang Schaeuble welcomed the Madrid government’s long-awaited decision to seek a bailout from the EU and the agreement among the euro-zone finance ministers to support Spain.

The Spanish government will have to undertake the guarantee for the loans, the statement said.

The rescue loan to stabilise the banking sector will be made available as soon as Spain negotiates a programme on restructuring its banks with the European Commission, the European Central Bank (ECB) and the IMF, Schaeuble said in a television interview last night.

“We agreed (during the conference call) that if Spain puts forward an application, we will support it within the framework of the rules of the European institutions and the national Parliaments,” he said.

Scheuble said the exact level of assistance needed to recapitalise the Spanish banks will be decided after two audits of banks will be completed by the end of June.

On the basis of the estimates of the Spanish government and the IMF, 100 billion euros offered by the euro group will be much more than what Spain needs to stabilise its banking sector, he said.

The IMF on Friday estimated that the Spanish banks have a requirement of at least 40 billion euros.

Schauble said the ministers urged the Spanish government to seek the EU help because it is necessary that the country’s banks have sufficient capital base.

He said he does not expect Spain to ask for more assistance from the EU because it is well on its way to implement far reaching structural reforms.

It will take some time before the reforms can produce results, but in the assessment of various institutions, the country is on the right path.

“If the banks have sufficient capital, then the uncertainty in the financial markets about Spain’s banking sector can be eliminated,” he said.

He said the agreement will have a positive impact on the financial markets when they open a new trading week on Monday.

PTI