Spanish bank bailout request welcomed

Live: Spain's Prime Minister Mariano Rajoy gives news conference

Spain's decision to request a loan of up to 100bn euros ($125bn; £80bn) from eurozone funds to help shore up its struggling banks has won broad support.

The International Monetary Fund (IMF) said the bailout was big enough to restore credibility to Spain's banks.

Washington welcomed the measure as a vital step towards the "financial union" of the eurozone.

The move was agreed during emergency talks between eurozone finance ministers on Saturday.

IMF managing director Christine Lagarde said the plan for Spain should provide "assurance that the financing needs of Spain's banking system will be fully met".

"I strongly welcome the statement by the Eurogroup, which complements the measures taken by the Spanish authorities in recent weeks to strengthen the banking system," she said.

"The IMF stands ready, at the invitation of the Eurogroup members, to support the implementation and monitoring of this financial assistance through regular reporting."

US Treasury Secretary Timothy Geithner welcomed the latest moves as "important for the health of Spain's economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area".

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If Spain has succeeded, as it claims, in persuading Germany and the other eurozone governments to hand over the 100bn euros with no strings attached that relate to Spain's spending and taxing - to its budget - then Ireland would have a powerful case for demanding a renegotiation of its bailout package”

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France's Finance Minister Pierre Moscovici said the deal would "contribute to restoring confidence in the eurozone".

The president of the European Commission, Jose Manuel Barroso, said he was confident that through bank restructuring and other reforms, Spain could gradually regain the confidence of investors and create the conditions needed for sustainable growth and job creation.

'Not a rescue'

Earlier, Spanish Economy Minister Luis de Guindos announced that his country would shortly make a formal request for assistance.

He said the help would be for the financial system, not the economy as a whole. "This is not a rescue," he said.

Mr De Guindos said the aid would not come with new austerity measures attached to the economy. Spain has already imposed strict economic reforms in a bid to tackle its debt problems.

The loan will bolster Spain's weakest banks, left with billions of euros worth of bad loans following the collapse of a property boom and the recession that followed.

Some banks borrowed large amounts on the international markets to lend to developers and homebuyers, a riskier strategy than funding it with deposits from savings.

The exact amount that Spain will receive will be decided after the completion of two audits of its banks, due to be completed by the end of June.

The money will come from two funds created to help eurozone members in financial distress - the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM), which enters into force next month.

Investors have recently demanded higher and higher costs to lend to Spain, making it too expensive for the country to borrow the money needed for a bank rescue from the markets.

Eurozone debt crisis bailouts

Who When How much Main problem
Spanish flag and Bankia branch

Spain

June 2012

Up to 100bn euros

Some banks borrowed large amounts to lend out, feeding a property boom. The credit crisis and recession meant billions of euros worth of loans could not be repaid

Greece flag

Greece

May 2010 and March 2012

110bn and 130bn euros. Private lenders also wrote off debt

Greece borrowed large amounts for public spending. The financial crisis, combined with deep-seated problems such as tax evasion, left it with massive debts

Portugal flag

Portugal

May 2011

78bn euros

High government spending and a weak, uncompetitive, economy built up debts it could not pay back

Irish flag

Republic of Ireland

November 2010

85bn euros

Like Spain, a property crash plunged the "Celtic Tiger" economy into recession, saddling its banks, which had lent big to developers and homebuyers, with huge losses

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