Spain seeks EU aid, market hopes dim

 Spain formally requested euro zone rescue loans to recapitalise its debt-laden banks on Monday, as the euro and shares fell on investor skepticism about this week’s EU summit.

Spanish Economy Minister Luis de Guindos asked for up to 100 billion euros ($125 billion) in a letter to Eurogroup chairman Jean-Claude Juncker, saying the final amount of financial assistance would be set at a later stage.

He confirmed his intention to sign a Memorandum of Understanding for the package by July 9 and said the amount should be enough to cover all banks' needs, plus an additional security buffer.
The rescue, agreed on June 9, is intended to help Spanish lenders recover from the effects of a burst real estate bubble and a recession, which have piled up bad loans and sinking property portfolios.

Two independent audits last week put the Spanish banks’ capital needs in a stressed scenario at up to 62 billion euros, and a full audit will be delivered in September. Some market economists believe it is merely a prelude to a full bailout for Spain, which saw its borrowing costs to soar to euro era record levels above 7 per cent early last week, although they have eased to below 6.50 per cent.

Spanish and Italian bond yields started to rise again on Monday as markets digested the outcome of a meeting of leaders from the euro zone’s four biggest economies in Rome last Friday at which German Chancellor Angela Merkel rejected any new financial commitments to underpin the single currency.

A working document prepared by top European Union officials calls for the gradual introduction of a banking union, starting with supervisory power for the European Central Bank and developing a deposit guarantee scheme based on pooling national systems, with a levy-funded bank resolution fund.

Berlin has so far rejected any joint deposit guarantee or resolution fund, as well as any mutualisation of the euro zone’s debt stock or future borrowing. Finance Minister Wolfgang Schaeuble hammered home this message in weekend interviews, saying that throwing more money at the crisis would not solve the problems, and telling Greece it must try harder rather than seeking to soften bailout terms.


“We have to fight the causes,” Schaeuble told German TV network ZDF. “Anyone who believes that money alone or bailouts or any other solutions, or monetary policy at the ECB that will never resolve the problem. The causes have to be resolved.”

He cited Ireland and Portugal as countries that were succeeding in their EU/IMF adjustment programmes and said Greece had not made a sufficient effort. But the German leader has shown no sign of relenting in her refusal to take on new liabilities for German taxpayers until other euro zone states agree to hand more sovereignty over national budgets and economic policies to EU institutions.

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