| 9.6°C Dublin

Spain to ask for eurozone aid today as it looks for recapitalisation of banks

SPAIN is expected to ask the eurozone for help with recapitalising its banks today, becoming the fourth country to seek assistance since Europe's debt crisis began.

Eurozone deputy finance ministers are due to hold a conference call this morning to discuss a Spanish request for aid and decide on a sum.

Later, the eurozone's 17 finance ministers will hold a separate call to discuss approving the request and then make an announcement, several media organisations reported.

Spain's bailout is being closely watched here where the Government hopes that it can be used in negotiations to hammer out a better deal for the debt burden linked to our bank bailout. Like Ireland, Spain's bailout is linked to bad property loans by banks rather than a fiscal crisis.

While the world's 12th largest economy would join Greece, Ireland and Portugal in receiving a bailout, officials said the aid would be focused only on its banking sector, without taking the Spanish state out of credit markets.


"I think they're trying to get a lighter support package, where the money is headed to the banks and not for financing the fiscal deficit," said Vincent Chaigneau, head of rates strategy at Societe Generale. "But you need to know the details, the size of the programme and who participates."

While funds would be paid to Spain from the European Financial Stability Facility (EFSF), it remains unclear whether they will go directly to the Spanish state or the banks.

Analysts said European finance ministers are anxious to rescue Spain before the Greek elections on June 17, which may cause further chaos.

"Finance ministers in the eurozone would like loose ends tied up before the situation in Greece goes live again," said Mujtaba Rahman, New York-based analyst for Eurasia group. "This move is designed to be pre-emptive, to send a positive signal to market participants that the Spanish situation is being managed," he said.

European governments and the IMF have made €386bn in loan pledges to Greece, Ireland and Portugal. Spain's economy is more than twice the size of the three countries combined. It is thought that aid to the country could top €350bn.

Irish Independent