Jun 25, 2012 / 7:22 am
Spain has made a formal request for a loan to help clean up its troubled banking sector, the Economy Ministry said Monday.
However, the country has yet to specify how much of the US$125.39 billion loan package offered by the 17 countries that use the euro it will ask for. Economy Minister Luis De Guindos said recently the figure will be made known July 9 when Spain and its single currency partners reach agreement on the terms of the loan, such as the interest rate.
Last week, two international audits commissioned the government said that Spain's banks could need up to $77.7 billion to survive if the economy were to suffer an extreme deterioration.
Spain earlier this month finally admitted that some of its banks were in severe trouble owing to the build-up of toxic assets following the collapse of the country's bloated real estate sector after 2008.
Spain is pushing for the loans to go directly to the banks, rather than have the government be responsible for repayment. While organizations such as the International Monetary Fund support this procedure, others such as fellow eurozone country Germany have ruled it out. Berlin insists on abiding by current regulations under which the money must be given to a government, adding to its debt pile. The Commission also stands by this position.
But Spanish Foreign Minister Jose Manuel Garcia-Margallo said Monday "the question of whether the money will go directly to the banks or to the state is still open,"
In the letter, de Guindos said the aid would be channeled through Spain's state-run bank bailout fund, known as the FROB.
Garcia-Margallo said Spain would seek the longest period possible for repayment and the lowest interest rate. De Guindos last week estimated the rate could be around 3-4 per cent.
Investors worry the government may not get the money back from the banks and would have to repay the loans itself and that this could push it closer to joining Greece, Ireland and Portugal in seeking a rescue loan for the whole country.
Spain is the eurozone's fourth-largest economy and such a sovereign bailout would seriously challenge the bloc's finances. The country is struggling through a recession with a swollen deficit it must slash and a 24.4 per cent jobless rate.
Those concerns kept Spain's benchmark 10-year borrowing rate up 0.12 percentage points to 6.48 per cent Monday.
Toby Sterling contributed to this report from Amsterdam.
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