Spain: No need for European funds to help banks

A Spanish flag flies over a military building with a symbol of the Franco era in Barcelona Thursday Oct. 11, 2007. Statues, street names and other symbols honoring Gen. Franco and his 40-year rule would be eliminated under a bill, presented by ruling Socialist Party, that seeks to make amends to victims of the Spanish Civil War. (AP Photo/Manu Fernandez)

(AP) MADRID - Spain's economy minister says a nationalized bank laden with toxic real estate assets will require a fresh injection of public money of up to 7.5 billion euro ($9.6 billion), but dismissed suggestions from France that the banking sector as a whole needs to be bolstered with European money.

The minister, Luis de Guindos, spoke in the aftermath of Friday's news that Spain's 2011 budget deficit was higher than expected - a second upward revision in recent months.

Markets remain concerned about the state of the Spanish banking sector as well as the wider economy, which is in recession and weighed down by a 24 percent or so unemployment rate. The yield on Spain's benchmark ten-year bond was up a further 0.03 percentage point to 6.23 percent Monday - anything above 7 percent is widely-considered to be unsustainable in the long-run.

De Guindos said the increase in the 2011 deficit figure from 8.5 percent of national income to 8.9 percent was due to overspending by four regions, which had not been "totally transparent" in providing figures initially.

He said recently nationalized lender Bankia will require an injection of around 7 billion euro to 7.5 billion euro to meet new provisioning requirements, but rejected the need for European rescue funds. That means Bankia could receive as much as 12 billion euro in government money. The new injection will come from an existing bank rescue fund and will have to be paid back.

De Guindos took issue, as did Spanish Prime Minister Mariano Rajoy over the weekend, with comments Friday by the new French President Francois Hollande that Spanish banks might need recapitalization funds from Europe. The minister said Hollande "probably knows the French banking sector better than the Spanish one."

Spain has essentially taken over Bankia by turning a 4.5 billion euro aid injection made in 2010 into shares in Bankia's parent company. Many Spanish lenders are heavily exposed to Spain's imploded real estate bubble, and Bankia is the worst off of all, with 32 billion euro in toxic assets.

De Guindos also said the Spanish economy, which has contracted by 0.3 percent in each of the past two quarters, will shrink by about the same amount in the second quarter of 2012. The forecast is for it to decline 1.7 percent for the year. Unemployment stands at a staggering 24.4 percent, and exceeds 50 percent for people under age 25.