Spain asks for bank rescue

PHILIPPE HUGUEN/AFP/GettyImages

(AP) MADRID - Spain has made a formal request for a loan to help clean up its troubled banking sector, Economy Minister Luis de Guindos said Monday.

However, the country has yet to specify how much of the 100 billion euro ($125.39 billion) loan package offered by the 17 countries that use the euro it will ask for. De Guindos said the figure will be made known July 9 when Spain and its single currency partners reach agreement on the terms of the loan, such as the interest rate.

Last week, two international audits commissioned the government said Spain's banks could need up to 62 billion euro ($77.7 billion) to survive if the economy were to suffer an extreme deterioration.

Spain earlier this month finally admitted that some of its banks were in severe trouble owing to the build-up of toxic assets following the collapse of the country's bloated real estate sector after 2008.

The letter to the euro area governments requesting the loan said the amount sought "would be sufficient to cover capital necessities as well as an additional margin of security up to a maximum of 100 billion euro."

It was sent to Jean-Claude Juncker, the Luxembourg prime minister who is also president of the eurogroup of finance ministers.

Spain would like the loans to go directly to the banks, rather than have the government be responsible for repayment. While organizations such as the International Monetary Fund support this procedure, others such as fellow eurozone country Germany have ruled it out. Berlin insists on abiding by current regulations under which the money must be given to a government, adding to its debt pile.

"The question of whether the money will go directly to the banks or to the state is still open," Spanish Foreign Minister Jose Manuel Garcia-Margallo said.

In Monday's letter, de Guindos said the aid would be channeled through Spain's state-run bank bailout fund.

Garcia-Margallo said Spain would seek the longest period possible for repayment and the lowest interest rate. De Guindos last week estimated the rate could be around 3-4 percent.

Investors worry the government may not get the money back from the banks and would have to repay the loans itself and that this could push it closer to joining Greece, Ireland and Portugal in seeking a rescue loan for the whole country.

Spain is the eurozone's fourth-largest economy and such a sovereign bailout would seriously challenge the bloc's finances. The country is struggling through a recession with a swollen deficit it must slash and a 24.4 percent jobless rate.

Those concerns kept Spain's benchmark 10-year borrowing rate up 0.09 percentage points to 6.45 percent Monday.

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