Spain Formally Requests Banking Bailout

Spain Makes Official Plea For Banking Bailout
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Spain has formally requested a bailout to help prop up its beleaguered banking sector.

The plea for international aid was made by Spanish economy minister Luis De Guindos in a letter to Eurogroup chairman Jean-Claude Juncker, who is also the Prime Minister of Luxemborg.

The exact amount Spain wants in loans was not mentioned in the letter and is due to be discussed at a meeting of the Eurogroup on 9 July, at which economy ministers from the 17-state currency bloc will be present.

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Body Language? Spain's economy minister Luis De Guindos with Austrian finance minister Maria Fetker

Eurozone ministers have already pledged that up to €100bn (£80bn) can be made available for the package. Two independent audits of the Spanish banks said last week that €62bn was needed to stabilize the financial sector.

However De Guindos said on Monday he wants the emergency loans to fund not only for the recapitalisation of the banks, but also to provide a security buffer for the financial sector.

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Luis De Guindos with European Central Bank President Mario Draghi. Earlier, in a bizarre move, the ECB tweeted congratulations to Germany, Spain, Italy and Portugal at getting through to the Euro 2012 semi finals.

It is expected that the loans will be channelled to the banks from the government managed fund, Funds for the Orderly Bank Restructuring (FROB) which was set up by the government to manage the banking crisis.

Spanish banks were plunged into spiralling debt after the property bubble burst, with seized assets dramatically depreciating.

However Spain is pushing for the banks to take on the loans directly, rather than having the state take responsibility for shouldering the debt.

"The question of whether the money will go directly to the banks or to the state is still open," Spanish Foreign Minister Jose Manuel Garcia-Margallo said.

The International Monetary Fund supports this allocation of funds, reports the Associated Press.

However Germany is not au fait with this procedure, preferring for Spain to take on the loan as part of the nation's sovereign debt.

There are fears that the 'bailout lite' requested by Spain for its banks is merely a precursor to the whole country needing a loan.

The country's borrowing costs have already soared to 7%, the point at which Greece, Portugal and Ireland requested a bailout.