Spanish PM hails euro lifeline for banks as victory

Spanish PM hails euro lifeline for banks as victory

photo_1339328213653-7-2-Quicklook.jpgMariano Rajoy holds a news conference in which he said he was the one who pressured for a line of credit

Spain’s leader Sunday hailed a eurozone lifeline of up to 100 billion euros ($125 billion) to save its stricken banks as a victory for his nation and for Europe.

Despite flatly denying any need for a rescue just 13 days earlier, Prime Minister Mariano Rajoy insisted Madrid had not caved in: it was he who had pressed for this solution, he said.

After an emergency video conference on Saturday, the 17 eurozone finance ministers said in a statement they were “willing to respond favourably” to a Spanish plea for help.

“I think we have taken a very decisive step,” Rajoy, who had been criticised in the media for failing to appear earlier, told reporters.

“Yesterday, the credibility of the euro won, its future, and the European Union.

“It was not easy,” he conceded.

“Nobody pressured me and I don’t know if I should say this, but it was I who pressured for a line of credit,” said Rajoy.

The rescue loan for Spain — hailed by Germany, France, Japan and the United States as well as the IMF — marked a dramatic, public U-turn for Spain, which had hotly denied any need for outside aid.

But Rajoy sought to paint it as a sign of European confidence in his government’s reforms and austerity measures.

photo_1339328342381-7-2-Quicklook.jpgSpanish Economy Minister Luis de Guindos at a news conference in Madrid on Saturday
AFP/File – Pedro Armestre

“If we had not done what we have done in the past five months, the proposal yesterday would have been a bailout of the kingdom of Spain,” he declared.

Opposition Socialist Party leader Alfredo Perez Rubalcaba was unconvinced.

“The government is trying to make us believe we have won the lottery,” he said.

The eurozone debt crisis has now snared the bloc’s fourth-biggest economy — Spain’s is twice the combined size of those of Greece, Ireland and Portugal, the countries bailed out so far.

European Economic Affairs Commissioner Olli Rehn said the eurozone was sending a clear signal that it was prepared to take “decisive action in order to calm down market turbulence and contagion”.

A formal request for aid was expected to be put in by Spain by the next eurozone finance ministers meeting scheduled for June 21 in preparation for a full European Union summit on June 28-29, he said.

The final figure will be known after the EU, European Central Bank and IMF finish a review of the situation and a formal accord will then be signed, he said.

Spain finally sought aid as its borrowing costs on the open markets soared and the price for fixing the banks’ balance sheets, heavily exposed to a property bubble that burst in 2008, spiralled.

photo_1339349257433-1-2-Quicklook.jpgSpain PM hails euro lifeline for banks as victory. Duration: 01:36

Economy Minister Luis de Guindos told reporters on Saturday that the loan did not amount to a rescue, but Rajoy declined to be dragged into a semantic debate Sunday.

A source close to the talks told El Pais it would cost three percent a year, less than half the latest open market rate on Spain’s 10-year bonds.

The government highlighted the fact that the deal imposed no new austerity measures or restrictions on the broader economy.

Rehn also stressed that there were no policy conditions attached to the aid.

Nevertheless, eurozone ministers said they were confident Spain would honour commitments to cut the deficit and restructure the economy.

“Progress in these areas will be closely and regularly reviewed,” they said in their statement.

German central bank chief Jens Weidmann, while welcoming the lifeline, also called on Spain to keep up reforms.

“I am confident in the Spanish government, which has already begun undertaking full measures in the labour market. But that path must continue,” he said.

photo_1339328424871-7-2-Quicklook.jpgSpain is not the only one facing credit trouble

Most of the Spanish newspapers’ front pages headlined with the word “Rescue,” although some sought to soften the blow. “Rescue without humiliation,” insisted the conservative daily El Mundo.

Spain may yet be forced into seeking a full sovereign rescue when it has to face the question of financing its debt-laden regions, warned Edward Hugh, independent analyst based in Barcelona.

“This could start from the autumn,” he said.

“This would officially be the bailout — they would find they could not manage it with a credit line so they would have to go for a bailout.”

IMF bank stress tests unveiled Friday determined that Spanish banks need about 40 billion euros in new capital, with a big safety margin on top of that.

If Spain took a 100-billion-euro loan in one go, it would boost the public debt level as a proportion of economic output by about 10 percentage points.

The eurozone hopes the rescue will satisfy financial markets and put Spain in a safe harbour ahead of the Greek elections on June 17, when there is a risk voters could turn against their bailout terms and force Athens into a destabilising exit from the eurozone.

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