Spain pledges to avoid full bailout

Spanish prime minister Mariano Rajoy said the “credibility of the euro won” in Saturday’s request by his government for as much as €100 billion in European Union aid to restructure the nation’s banks.

“Yesterday, the credibility of the euro won, yesterday the future won,” Mr Rajoy said yesterday at a press conference in Madrid. “Yesterday, the European Union won.”

Without planned reforms and deficit reduction, what happened on Saturday “would have been an intervention” instead of “the opening of a credit line,” Mr Rajoy went on to say.

The Spanish government will continue with its economic and financial reform programme, Mr Rajoy also claimed.

Mr Rajoy said the bank aid will allow Spain to avoid a full bailout.

The Spanish government asked euro-area finance ministers to provide aid beyond the amount the International Monetary Fund (IMF) estimated Spain’s banking sector required for restructuring, in order to supply an additional buffer, the prime minister said.

“This gives us a cushion, it gives us security, and logically the message it sends to the market is much clearer and more forceful,” he said.

However, the parliamentary group leader for chancellor Angela Merkel’s Christian Democratic Union (CDU) told the Die Welt newspaper yesterday that the European bailout aid for Spanish banks should be attached to conditions.

Spanish banks should undergo special supervision from the Spanish finance authorities, CDU lawmaker Volker Kauder told Die Weltin an interview.

Concrete conditions will be negotiated with the European Commission, European Central Bank and the International Monetary Fund — the so-called troika, Mr Kauder said.

Meanwhile, investors holding bonds issued by Spain and its banks will rank behind official creditors in the queue for payment after the bailout.

The funds will be channelled through the state-run FROB bank-rescue fund and Spain will “retain the full responsibility of the financial assistance and will sign” the agreement with the other partners, according to a statement.

Just seven months after winning a landslide victory, prime minister Mariano Rajoy was forced to abandon his bid to recapitalise Spanish banks without recourse to external help as a deepening recession forced lenders to recognise spiralling losses.

Concern about the banks, which are hobbled with more than €180bn in problematic real estate loans and assets, drove Spanish borrowing costs to near euro-era records last month.

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