Euro zone ministers at odds over Spain plan


EURO ZONE finance ministers struggled yesterday to advance their rescue plan for Spain’s crippled banks as the new Greek government pledged to renegotiate its EU-IMF bailout, an initiative viewed with scepticism by the EU powers.

As the ministers gathered last night in Luxembourg for regular talks, open divisions were on display as they were told Spain’s banks would need up to €62 billion to wash out their property losses.

The meeting comes in advance of a mini-summit in Rome today in which the leaders of Italy, Germany, France and Spain will take stock of the expanding debt emergency.

The determination that Spain’s banks may need €62 billion was made by two independent auditors. The figure is considerably higher than previous government estimates, but less than the €100 billion provision already made by the ministers a fortnight ago.

However, the relentless pressure on Spain’s bond yields has raised serious questions over the viability of a plan that assumes the country will retain access to private debt markets for non-bank borrowing. There is no sign that EU leaders might revise their opposition to direct European aid for the Spanish banks, which Madrid sought and which Dublin hoped would set a precedent for Ireland.

The aim of the Spanish government had been to free itself of the banking debt in order to maintain investor confidence. “I thought that the experience of Ireland should have been learned by the European authorities,” Minister for Finance Michael Noonan said.

The market pressure on Spain has fuelled growing anxiety that it might yet need a full-blown bailout, something that might overwhelm Europe’s anti-crisis “firewall” and threaten Italy’s access to markets.

Italy wants Europe’s rescue funds deployed to intervene in bond markets to ease pressure on Madrid and Rome but German minister Wolfgang Schäuble and Dutch minister Jan Kees de Jager said this could be done only in the context of a formal aid programme. “We dont need continuously new considerations in public as if we hadn’t made precise agreements already,” Mr Schäuble said.

Spain has been heavily criticised in private for failing to specify the banks’ capital requirements and for not making a formal application for emergency aid.

As he arrived in Luxembourg, however, Spanish economy minister Luis de Guindos said the formal request for a bailout was still a few days away. “The presentation of financial aid is a formality, it is not the fundamental issue,” he told reporters.

Last night’s meeting occurred as newly-installed Greek premier Antonis Samaras set up a special unit to renegotiate the bailout.

Some euro zone countries are willing to provide some leeway to Greece, but Mr Samaras is expected to ask for an additional two years to meet onerous fiscal targets.