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Spain: bailout decision could come this month

By Daniel Woolls

Associated Press

Published: Friday, June 8 2012 8:56 a.m. MDT

Spain's Prime Minister Mariano Rajoy, adjust his glasses before a meeting with Netherlands' Prime Minister Mark Rutte at the Moncloa Palace, in Madrid, Thursday, June 7, 2012. Spain's Prime Minister appeared Thursday to have abandoned his insistence that the country's troubled banking sector will not need an external bailout, as for the first time he avoided ruling out such an option.

Daniel Ochoa de Olza, Associated Press

Enlarge photo»

MADRID — Spain could decide this month to ask for a bailout for its troubled banking sector, a step that would make it the fourth country in the 17-member eurozone to seek help since the EU debt crisis broke out.

Deputy Prime Minister Soraya Saenz de Santamaria said the government would not act until it has received a raft of reports on how much money Spain needs to save its banks from collapsing under the weight of toxic loans. An International Monetary Fund report is expected to be released on Monday with two independent auditor surveys due by June 21. She added that no decision on a bailout was made at Friday's Cabinet meeting.

"Once the estimates of the numbers are known with regard to what the financial sector might need, the government will state its position," she said.

"But in any case, I am telling you that no decision has been made either way," she added.

Saenz de Santamaria declined to say how much the sector, hit by the collapse of the country's real estate bubble, might need. Estimates of the cost of bailing out Spain's banks vary greatly, from €40 billion ($49.87 billion) to as much as €100 billon.

Commenting on reports that eurozone finance ministers will hold a conference call the Saturday on Spain, Saenz de Santamaria said that "no meeting is planned" but would not confirm or deny whether some kind of communication would take place.

The Spanish government appears to have resigned itself to the fact that it needs a bailout to prop up its struggling banks. Prime Minister Mariano Rajoy has moved on from firmly stating that "there will be no rescue of the Spanish banking sector" 10 days ago to avoiding ruling out seeking external help for the banking sector of the eurozone's fourth largest economy.

Spain has been criticized for being too slow to set out a roadmap to resolve its problem. European business leaders and analysts have stressed that Spain must find a solution quickly so that it is not caught up in any market turmoil sparked by the Greek elections on June 17. There are concerns that anti-bailout leftwing party Syriza could become the largest party in the Greek parliament, putting the country's membership of the 17-nation eurozone at risk.

"What we now crucially need is transparency and trust," said Andreas Schmitz, the head of Germany's banking association. "Any further uncertainty, any speculation how the situation could develop is poisonous for the markets."

If Spain asks for a bailout and taps the Europe's rescue facility, the European Financial Stability Facility, the move could raise larger questions about the Spanish government's ability to keep refinancing its debts in the bond market, analyst Ralph Solveen at Commerzbank wrote in a note to investors.

"After all, Spain would be admitting by such a request for support to banks, that it can no longer finance itself for all purposes on the market," Solveen said.

Investor doubts about a country's ability to maintain its debts can lead to higher borrowing costs, which in turn undermine the government's ability to finance itself. Greece, Ireland and Portugal have all fallen victim to such market doubts and were forced to take bailouts from the other eurozone countries.

A Spanish bank bailout could also turn market focus to Italy, which has the second-highest debt load in the eurozone after Greece at some 120 percent of gross domestic product. Italy's budget is in better shape but its growth prospects have sagged and the willingness of Italian politicians to tackle the country's long-standing problems with choking bureaucracy, taxes and regulation remains in doubt.

David McHugh contributed this report from Frankfurt.

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