Spain will ask for a bank bailout from the eurozone, becoming the fourth and largest country to seek help since the single currency bloc's debt crisis erupted.
Economy Minister Luis de Guindos said the aid will go to the banking sector only and thus does not come with new austerity conditions attached for the economy in general.
He gave no figure as to how much Spain will request, saying that he would wait until independent audits of the country's banking sector have been carried out before asking for a specific amount.
Mr De Guindos said that Spain would request enough money for recapitalisation, plus a safety margin that will be “significant”.
The money will be funnelled through an existing bailout fund called the FROB.
Mr De Guindos said that with markets in turmoil, the government’s efforts so far to shore up the financial sector – through new provisioning requirements - “Must be completed with the necessary resources to finance the needs of recapitalisation.”
“Therefore, the Spanish government states its intention to request European financing for the recapitalisation of banks that need it,” the minister told a press conference after a videoconference with colleagues from the 17-member eurozone.
A statement issued after that meeting said up to €100bn would be made available to Spain.
The Spanish acceptance of aid for its banks is a big embarrassment for Prime Minister Mariano Rajoy, who, in echos of the Irish bailout, said just 10 days ago firmly that the banking sector would not need a bailout.
A rescue for Spain will be Europe's fourth since the single currency bloc's debt crisis erupted two years ago.
While the country's leaders have long said it would not need help righting its financial sector, markets have been nonetheless concerned about its ability to pay its way.
In recent weeks investors have demanded higher and higher costs to lend to Spain, and it became clear it would be just too expensive for the country to borrow the money necessary for a bank rescue from the markets.
A statement from the finance ministers of the 17 countries that use the euro explained that the money would be fed directly into a fund Spain set up to recapitalise its banks, but underscored that the Spanish government is ultimately responsible for the loan.
Still, that plan allows Spain to avoid making the onerous commitments that Greece, Ireland and Portugal were forced to when they sought their rescues.
Instead, the eurogroup statement said that it expected Spain’s banking sector to implement reforms and that Spain would be held to its previous commitments to reform its labour market and manage its deficit.
Spain was hit Thursday with a downgrade of its credit rating to just two notches above junk by credit rating agency Fitch, which estimated Spanish banks may need as much as 100 billion euros. Then on Friday, Moody’s Investor Services warned it could downgrade Spain and other countries in the eurozone.
In the early hours of today, the International Monetary Fund released a report estimating that Spanish banks need a recapitalization injection of at least €40bn following a stress test it performed on the country’s financial sector.
That report came out three days ahead of schedule, underscoring the urgency of the situation.