Spain: No request for bailout, says minister

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Spain's economy minister has dampened speculation that the country is about to seek a bailout of its bank sector.

Luis de Guindos said no decision would be made until audits of the banks were completed, possibly by the end of June.

There have been reports that Spain was seeking an immediate bailout from eurozone funds.

The European Central Bank (ECB), meanwhile, dashed hopes that it would further support banks to try to ease the current crisis in the eurozone.

Despite these comments, the major European markets all ended the day more than 2% higher, with some commentators still expecting authorities to intervene soon.

ECB president Mario Draghi acknowledged the seriousness of the situation, but suggested that injecting money into the banking system by way of more long-term loans (LTROs), was not the answer. He put the onus on the region's governments instead.

"The issue now is whether these LTROs would actually be effective. Some of these problems in the euro area have nothing to do with monetary policy... and I don't think it would be right for monetary policy to fill other institutions' lack of action."

Analysis

Madrid is desperate to avoid having to ask for a formal bailout from the EU, which would come with strict political and economic conditions, something of a national humiliation.

But Spain has admitted that, because of its banking crisis, it is close to the point where it can no longer afford to borrow money on the international markets. So it is seeking funds which can be injected directly into the banking system.

The European Commission says urgent measures need to be taken, but it has also published longer term proposals designed to protect governments from paying for the failure of banks in the future.

These measures - the immediate ones and the longer term ones - depend to a large degree on the agreement of Europe's most powerful economy, Germany, and its most powerful politician, Angela Merkel.

Everyone from Barack Obama to David Cameron to Mario Draghi may be putting pressure on her to act, and act decisively. But the German chancellor has been extremely consistent since the start of the eurozone crisis, saying solutions have to come one step at a time, there is no magic wand.

To many it seems an increasingly high risk strategy. But there is not much sign so far that she is about to change course.

The UK Prime Minister David Cameron and the US President Barack Obama kept up pressure on European leaders, calling for an "immediate plan" to restore confidence.

The prime minister is due to meet the German Chancellor Angela Merkel on Thursday to discuss the issues.

President Obama spoke separately on Wednesday to Mrs Merkel and the Italian prime minister Mario Monti to discuss economic conditions in Europe.

A statement said the leaders agreed on the importance of steps to strengthen the resilience of the eurozone and growth in Europe and globally.

They agreed to remain in contact ahead of a forthcoming summit later this month in Los Cabos, Mexico.

'Shut'

With Spain's cost of borrowing rising to levels at which Greece, Portugal and Ireland had to seek international bailouts, some had suggested the ECB would restart its programme of offering cheap long-term loans, designed to ease borrowing costs.

The ECB has provided 1 trillion euros ($1.25tn; £800bn) for the banking system with two re-financing operations in the past six months.

Spain's finance minister said on Tuesday that the credit markets were "effectively shut" to his country, inflaming worries that it will not be able to avoid seeking outside help.

Spain has to find at least 80bn euros to strengthen its banks, which are struggling due to bad property loans.

A key test will come on Thursday, with Spain due to auction up to 2bn euros of bonds.

'Road map'

Spain is keen to avoid having to ask for a European Union bailout as this would come with strict conditions.

Reports suggest European officials are instead looking at how funds could be injected directly into the banking system.

An IMF audit of Spain's banks is due next week, with further independent reports completed about two weeks after.

"I have absolutely not discussed any intervention in Spain's banks today," Economy Minister Mr de Guindos told reporters on the sidelines of meetings in Brussels.

Asked if Spain was preparing a request for EU aid, he said: "We are not preparing anything... we have a road map."

Future solution

Michel Barnier, European Commissioner: "We must equip public authorities so that they can deal adequately with future bank crises"

On Wednesday, the European Commission unveiled proposals designed to stop taxpayers' money being used to bail out failed banks.

The aim is to ensure losses are borne by bank shareholders and creditors and minimise costs for taxpayers.

However, new legislation is unlikely to come into force before 2014 at the earliest, too late to protect taxpayers from any further immediate bank failures.

"The proposal we have today may be only useful for the future but it does not solve the current problems we face," said Sharon Bowles, chair of the European Parliament's economic and finance committee.

There would be new requirements for countries to prepare for a bank collapse, collecting money through an annual levy on banks that would be used to provide emergency loans or guarantees.

The European Commission plans involve drawing up a EU-wide framework that would allow:

  • Financial regulators to be more "intrusive" in the running of banks as firms' stability worsens
  • Forcing banks to draw up explicit "recovery" and "resolution" plans in the event of their finances deteriorating
  • Countries to enforce the sale of all or a part of failed banks, overriding the rights of shareholders or creditors
  • Appointment of a "special manager" at a bank to "restore its financial situation"
  • Laying the foundations for an "increasingly integrated EU-level oversight of cross-border entities"

The changes form part of commitments agreed by the leaders of the G20 group of major economies in September 2009.

Michel Barnier, the commissioner who unveiled the plans, said: "We must equip public authorities so that they can deal adequately with future bank crises. Otherwise citizens will once again be left to pay the bill, while the rescued banks continue as before knowing that they will be bailed out again."

If it wins the backing of EU countries and the European Parliament, the law would mark a step in the direction of the banking union supported by European Central Bank president Mario Draghi.

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