BRUSSELS – Spain will request aid from its euro zone partners of up to 100 billion euros but not until it has a clearer idea of the amount of capital its banks need from independent audits due to report in just over a week, EU sources told Reuters on Saturday.
Spain indicated during a conference call of the euro zone's 17 finance ministers that it wanted aid for its banks but would not specify the amount until two independent consultants deliver their assessment of the capital needs some time before 21 June.
"They want the aid, but they'll only say how much in a few days' time," one of the sources said.
A bailout for Spain's teetering banks, once requested by Madrid, could amount to as much as 100 billion euros (US$125 billion), two senior EU sources told Reuters, although they emphasized that the final request could be much less than that.
Earlier, Eurogroup chairman Jean-Claude Juncker called for a "quick solution" which, once it led Madrid to ask the currency bloc for help, would make it the fourth country to seek assistance since Europe's debt crisis began.
One source who was on an earlier Saturday call to discuss the technicalities of a rescue said Spain did not want International Monetary Fund involved in the package for its banks. But it is unlikely to get its way with IMF oversight required even though it will not be putting up any money.
Officials said there had been a heated debate over the IMF's role. In the end it was agreed that the IMF would help monitor reforms in Spain's banking sector, while EU institutions would ensure Spain stuck to its broader economic commitments.
"It's not getting a program as such, but there's still monitoring, especially of banking reform," one source said.
Euro zone policymakers are eager to shore up Spain's position before 17 June elections which could push Greece closer to a euro zone exit and unleash a wave of contagion.
Spanish Industry Minister Jose Manuel Soria repeated on Saturday the government's argument that it should not act until it sees a separate audit of the banking system due by consultants Oliver Wyman and Roland Berger.
"If the government decides to seek a rescue, whatever the formula being used, we need to say two things: first the innocent should not suffer for the guilty, second public money should come back to public coffers," said Socialist opposition chief Alfredo Perez Rubalcaba after speaking with Prime Minister Mariano Rajoy on Saturday morning.
The government has already spent 15 billion euros bailing out small regional savings banks that lent recklessly to property developers.
Spain's biggest failed bank, Bankia, will cost 23.5 billion euros to rescue and its shareholders have been wiped out.
"I'm not particularly keen on a bank bailout because it's totally unfair. Banks should work like any other business. If they have profits they can keep them, if they lose money they have to assume the losses," said Javier, a Madrid resident who did not want to give his name or age.
LIGHT CONDITIONS
The race to resolve the banks' troubles comes after Fitch Ratings cut Madrid's sovereign credit rating by three notches to BBB, highlighting the Spanish banking sector's exposure to bad property loans and to contagion from Greece's debt crisis.
It said the cost to the Spanish state of recapitalizing banks stricken by the bursting of a real estate bubble, recession and mass unemployment could be between 60-100 billion euros ($75-$125 billion). The higher figure would be in a stress scenario equivalent to Ireland's bank crash.
Italy could yet get dragged in too. Its industry minister, Corrado Passera, said the economic situation in Italy had improved since the end of 2011, but remained critical.
"Europe was more disappointing than we had expected, it was less capable of tackling a relatively minor problem such as Greece," Passera told a conference.
Although the details have not been finalized, Spain is expected to ask for help from the 440 billion euros European Financial Stability Facility rescue fund.
The process is likely to involve bonds from the EFSF being injected into Spanish banks with no new capital raised, a euro zone official said on Friday. The bonds can then be used as collateral, allowing the banks to access ECB liquidity.
Bundesbank president Jens Weidmann said Spain should turn to the EFSF if it could not afford the bank recapitalization bill.
In an interview to appear in Sunday's Welt am Sonntag newspaper, Weidmann said: "If Spain sees itself overwhelmed by financing needs, it should use the instruments that were created for that."
While Spain would join Greece, Ireland and Portugal in receiving a European financial rescue, officials said the aid would be focused only on its banking sector, without taking the Spanish state out of credit markets.
That would be crucial to avoid overstraining the euro zone's rescue funds, which would struggle to cover Spanish government borrowing needs for the next three years plus possible additional assistance for Portugal and Ireland.
Conditions in the plan are expected to be related to the banks and would probably not add to the austerity measures and structural economic reforms which Rajoy's government has already put in place, EU and German sources said.
A "bailout lite" would help salve Spanish pride. Spain is the world's 12th largest economy and No. 4 in the euro zone. EU and German officials have cited national pride as a barrier to requesting a full assistance program.
The European Commission and Germany both agreed in principle last week that Spain should be given an extra year to bring its budget deficit down below the EU limit of 3 percent of gross domestic product because of a deep recession.
