Spain could decide within days or weeks to ask for a bailout for its troubled banking sector, making it the fourth eurozone country to seek help since the EU debt crisis erupted.
Deputy prime minister Soraya Saenz de Santamaria said the government would not act until it received a raft of reports on how much money Spain needed to save its banks from collapsing under the weight of soured property investments.
An International Monetary Fund report was released early today and two independent auditor surveys were due by June 21.
“Once the estimates of the numbers are known with regard to what the financial sector might need, the government will state its position,” Ms Saenz de Santamaria said.
“But in any case, I am telling you that no decision has been made either way.”
She declined to say how much the sector, hit by the collapse of the country’s property bubble, might need. Estimates of the cost of bailing out Spain’s banks vary greatly, from €40bn to as much as €100bn.
The IMF said it estimates that Spanish banks need at least a €40bn capital injection
following a stress test it performed on the country’s financial sector.
Commenting on reports that the 17 eurozone finance ministers will hold a conference call on Spain today, Ms Saenz de Santamaria said “no meeting is planned” but would not confirm or deny whether some kind of communication would take place.
The Spanish government appears to have resigned itself to the fact that it needs a bailout with money pumped in from Europe to prop up its struggling banks, and cannot handle the job on its own.
Prime minister Mariano Rajoy has moved on from firmly stating that “there will be no rescue of the Spanish banking sector” 10 days ago to avoiding ruling out seeking external help for the banking sector of the eurozone’s fourth largest economy.
Spain has been criticised for being too slow to set out a road map to resolve its problem. European business leaders and analysts have stressed that Spain must find a solution quickly so that it is not caught up in any market turmoil sparked by the Greek elections on June 17.
There are concerns that anti-bailout left-wing party Syriza could become the largest party in the Greek parliament, putting the country’s membership of the 17-nation eurozone at risk.
“What we now crucially need is transparency and trust,” said Andreas Schmitz, the head of Germany’s banking association. “Any further uncertainty, any speculation how the situation could develop is poisonous for the markets.”
But others said it was more important for Spain to correctly assess how to shore up its banking system than to hurry into a bailout ahead of the Greek elections.
The audits that Spain’s government is waiting for are crucial to determining precisely how much capital the nation’s troubled banks need, said Mark Miller, an analyst with Capital Economics in London.
“Any notion of rushing, that would be very unwise, in fact I think it could make things much worse,” he said. “I think it’s important to get it right rather than simply say that there is a rather appealing idea of a one-week window of opportunity, relative to getting a solution ahead of Greek elections.”
If Spain doesn’t get a request for outside help right the first time, “then you are in second bailout territory”.
Working in Spain’s favour is the fact that its public debt is actually quite low, at 68.5% of its gross domestic product at the end of 2011.
Its debt is predicted to hit 78% by the end of the year, but even that figure would be below the debt-to-GDP ratios of Europe’s strongest economy, Germany.
“The one thing Spain has in its favour is that its debt to GDP ratio is lower than it is in Greece, Ireland and Portugal, the other bailout countries,” Mr Miller said.
“From a debt sustainability point of view this buys Spain more time even though Spain’s borrowing costs are very, very high at the moment.”
But Spain’s economy is in a terrible condition. It is in its second recession in three years, unemployment is nearly 25% and there is little hope for improvement this year. Mr Rajoy’s government has imposed a wave of austerity measures since he took office in December that have raised taxes, made it cheaper to hire and fire workers and cut government funding for education and health care.