Madrid rejects reports of rescue aid pressure


SPAIN AND the European Commission have denied a succession of reports in the Spanish media that the country is coming under pressure from Brussels to seek rescue aid to boost its crippled banks.

Several Spanish newspapers, quoting a senior European source, said the country’s centre-right government was being urged to seriously consider applying for emergency aid from euro zone bailout funds to recapitalise its banks. The Spanish economy ministry said no such proposal had been made and that the government believed external aid was unnecessary.

In spite of the denials from Brussels and Madrid, the development heaped pressure on prime minister Mariano Rajoy as his administration prepares to unveil its inaugural annual budget tomorrow.

At a time of relative calm on debt markets, it also heralds potential for a new outburst of pressure on the euro zone generally.

The government extracted a concession from Europe this month when its deficit-cutting target was eased. With €15 billion in austerity measures already in train this year, however, Mr Rajoy’s government must still find another €20 billion in savings or tax measures tomorrow.

The unemployment rate in Spain is the highest in the EU and Spanish unions have called a general strike today, their first since late 2010, in protest at an unpopular overhaul of the labour market.

The European source told the papers that the country’s banks would not be in a position to lend to its “real economy” until they were thoroughly recapitalised.

Mr Rajoy’s government, in power since December, has directed the banks to raise more than €50 billion to restore their balance sheets in the aftermath of a spectacular property market collapse. The source said the bailout funds were the only feasible source of much of this capital as private investors are wary of the banks and the Spanish government cannot afford to back them.

Given that tomorrow’s budget is coming with only nine months remaining in the year, the source also suggested Mr Rajoy would be well-advised to produce a budget plan for 2012 and 2013 to boost his government’s credibility.

While it apparently acknowledged that any application for emergency aid would stigmatise Spain, the source made the case that there was no good solution to the problems of the banks.

Economics commissioner Olli Rehn immediately rejected the reports, saying they were unfounded.

The Spanish commissioner Joaquín Almunia, who holds the competition portfolio, said in Brussels yesterday that Mr Rehn had stated the commission’s position.

Mr Rehn’s spokesman said the Spanish reports were purely misleading. “They do not reflect either the thinking or position of the European Commission,” he said. “Already at this stage, it appears that the additional provisioning and capital requirements will be largely met through private sector solutions.”

A senior European official, closely involved in preparations for a meeting of finance ministers in Copenhagen tomorrow, dismissed the reports. “I see absolutely no need, utterly, absolutely no need for any European Stability Mechanism programme for Spain.”