Spain to seek bank bailout within days

Spain will present its official request for an EU bailout for its banks over the weekend but failed to convince all eurozone countries that the loan should not have preferential creditor status — a prospect blamed for the country’s euro-era record borrowing costs.

While the head of the EFSF bailout fund, Klaus Regling, said finance ministers “may look at this again”, IMF chief Christine Lagarde warned that it was important to break the link between the banks and the sovereign.

She delivered a stern message to the ministers in Luxembourg last night that the eurozone was under acute stress with the monetary system itself under question.

The eurozone must move toward compete monetary union as quickly as possible and reaffirm this intention immediately to restore faith in the system, she said.

An advance troika group will go to Athens on Monday to make a preliminary assessment of the situation there before a full mission goes to make changes to the programme taking into account the current situation. The €1bn withheld from the last disbursement of funds will be released next month.

Two independent assessments of Spanish banks released yesterday said their banks would need between €51bn and €62bn to recapitalise — which is well within the €100bn the EU has agreed to lend them.

The Spanish economy minister, Luis de Guindos, said Spain had started working on the design of the aid with the commission, the ECB, and IMF He did not expect the entire process to be finalised before the end of July.

Spain has been arguing to separate the banking debt from the sovereign. It wants to ensure that money lent from the ESM would not have preferential creditor status, and to keep it off the government debt. Ireland, Greece, and Portugal firmly supported this.

Finance Minister Michael Noonan said Spain’s borrowing costs were high and added, “They have a big deficit they estimated themselves at 8.9% of GDP so funding the government is a big issue — but I thought that the experience of Ireland should have been learned by the European authorities and to recapitalise their banks and to transfer the accounting of it directly on the sovereign seemed to me an additional burden”.

He said that the EU agreement to make available €100bn for Spain had not convinced the markets but it was too soon to say if it was working or not. “I think the bit that’s missing is that Spain hasn’t made an application”, adding that the uncertainty surrounding how much they need was making the markets jittery.

Ireland and the other programme countries got agreement that if they needed funds from the ESM this money would not have preferential creditor status. However it is limited to the three programme countries at the time of signing and Spain is asking to be included also.

They argued that since the articles giving loans preferential creditor status were in the treaty’s recital and not in the treaty itself that this could be varied. Eurozone head Jean Claude Juncker said that the money for Spain would come from the EFSF until the ESM came into force when it would then switch over.

The leaders of Germany, France, Italy and Spain meet in Rome tomorrow, Friday, in advance of next week’s summit in Brussels. Finance Ministers from all 27 member states meet in Luxembourg today when proposals for a financial transaction tax will be on the agenda.