By JONATHAN HOUSE
MADRID—The Spanish government formally requested European Union aid to help finance the cleanup of its ailing banking industry, as Prime Minister Mariano Rajoy signaled he will continue to push for the best possible terms for the assistance.
Spain this month struck an agreement with the 16 other euro-area members to ask for as much as €100 billion ($125.6 billion) from EU bailout facilities. The government on Monday didn’t specify how much it will ask for, or provide new details on the conditions that are likely to be attached to the aid, according to a copy of the request sent by the finance ministry, but said it hopes to complete an agreement on the terms by July 9.
Separately, EU Economics Affairs Commissioner Olli Rehn said, “I am confident that we can conclude an agreement on the Memorandum of Understanding in a matter of weeks.”
Spain’s banking problems have pushed it to the front lines of the euro zone’s long-running debt crisis, heightening concerns over the solvency of the common currency’s fourth-largest economy as it grapples with a housing bust and a 24.4% unemployment rate.
The government had long resisted the idea of a bailout for its banks, wary of the economic and political stigma that could bring, relenting only under mounting pressure from its EU peers and when it became clear the Spanish government couldn’t afford to support the banks on its own.
“With this step, Spain has tried to contribute as much as possible to the re-establishment of confidence in the euro zone,” Mr. Rajoy said at a meeting of Spain’s employers association.
But market reaction to Spain’s banking bailout has been negative. As the aid will be channeled through the Spanish government, investors fret over the impact it will have on Spain’s ailing finances.
Spanish assets took a fresh beating on Monday, amid speculation that ratings firm Moody’s Investors Service could downgrade the debt ratings of several Spanish banks as early as Monday. Spain’s IBEX-35 index shed 3.7%, pulled down by losses in local banking stocks. Moody’s downgraded Spain’s sovereign-debt rating by three notches on June 13, and people familiar with the situation expect banks to follow suit.
A Moody’s spokeswoman declined to comment.
Spain’s borrowing costs, as measured by the yield on its 10-year sovereign bond, rose to 6.59% Monday from 6.19% Friday.
The situation elsewhere in Europe grew more complicated Monday, as Greek Finance Minister Vassilis Rapanos, who has been hospitalized since Friday with stomach problems, submitted his resignation, and Cyprus formally requested aid from the European Stability Mechanism, the euro zone’s permanent bailout fund, as it looks to shore up its banking system.
The Athens General Index fell 6.8%, while the Dow Jones Industrial Average was down around 1.2%.
“We must break the vicious links between banks and sovereigns,” Mr. Rajoy said, adding that the creation of a pan-European regulator, deposit insurance fund, and crucially, a bailout fund that can directly inject capital into ailing banks, would be the best way to do that.
“At the next European summit we must lay out the steps to advance toward greater union,” Mr. Rajoy said, in reference to a meeting of EU leaders Thursday and Friday.
EU bailout funds aren’t currently allowed to lend money directly to banks, something Spanish officials have been trying to change, though the idea is opposed by Germany, the euro zone’s paymaster.
Another idea to ease investor concerns over the terms of the Spanish bailout is to change regulations that give the ESM senior creditor status and subordinate the claims of private-sector investors.
“Doubts about the preferred nature of this debt persist,” Spanish Deputy Finance Minister Fernando Jiménez Latorre said at a news conference. “In coming weeks, these doubts will be resolved,” he added.
Speaking in Madrid, EU Commission Competition Commissioner Joaquin Almunia said it should be possible to change the senior status of ESM loans “if there is an agreement among member states that contribute to the fund.”
In exchange for the bank aid, the EU is expected to demand that Spain push through a deep restructuring of a bloated financial sector and to redouble efforts to narrow a budget deficit that hit nearly 9% of gross domestic product last year. In a meeting with journalists and business leaders, Mr. Almunia said bank liquidations must be an option and that “Spain is very much delayed” in its budget-cutting efforts.
—Christopher Bjork
and David Román
contributed to this article.
Write to Jonathan House at jonathan.house@dowjones.com
Article source: http://online.wsj.com/article/SB10001424052702304870304577488023877001892.html?mod=rss_economy
Loading ...