Spain closer to bailout rescue as EU leaders apply pressure
Spain appeared to move closer to needing a financial rescue package last night as EU chiefs put pressure on Madrid to deal with the banking crisis.
As tensions mounted in Europe, German Chancellor Angela Merkel hardened her stance on EU countries clubbing together to borrow money.
The collective issuing of bonds by eurozone countries, known as euro bonds, is one of the measures being talked up by the Government as it would help Ireland.
But the escalating problems in the euro are pushing Ms Merkel to maintain her hardline position.
The EU was reported last night to be urging Spain to accept financial aid.
Spain's most reputable newspaper 'El Pais' cited unnamed officials in Brussels saying the EU was putting pressure on the Spanish government to admit it will need a bailout.
The rescue is needed because investors won't lend the government the money required to recapitalise the banking system, the newspaper reported an EU official saying.
In response to the Spanish crisis, France backed the use of the new EU bailout fund to rescue banks directly.
French finance minister Pierre Moscovici said it would be better to recapitalise troubled European banks using the new European Stability Mechanism (ESM) bailout fund than use government money.
"Once this mechanism is in place, things will be clearer and the situation will be calmer for a certain number of banks, including Spanish banks," he added.
The new €700bn bailout fund is expected to be up and running in the next month.
The euro tumbled against the dollar and dropped to an 11-year low against the yen this weekend as uncertainty over the outcome of Greek elections on June 17 shifted to take in Spain, where Prime Minister Mariano Rajoy's government is struggling to shore up banks amid a recession.
Ms Merkel and German finance minister Wolfgang Schaeuble are urging Mr Rajoy to take an international bailout since Spain cannot solve its banking woes alone, German news magazine 'Der Spiegel' reported at the weekend.
Mr Rajoy said the euro region should have a centralised mechanism that can directly recapitalise lenders as part of a "banking union", echoing a proposal by European Commission President Jose Barroso.
Such a structure, which might include conditions for banks receiving aid, would help meet Spain's need for external capital without the stigma of a formal rescue.
Tanaiste Eamon Gilmore said euro bonds were on the table as EU leaders seek to resolve the eurozone crisis.
"Euro bonds are now on the agenda in Europe," he said.
However, the German chancellor actually hardened her opposition to joint debt sharing in the euro region -- even as US President Barack Obama singled out Europe's leaders for not doing enough to halt the financial crisis.
The German leader rejected joint debt issuance in the 17-country eurozone area as a solution, saying "under no circumstances" would she agree to Germany-backed euro bonds.
Instead, what's needed is an economic overhaul to tackle the lack of competitiveness in Europe, she said.
Germany remains the largest contributor to bailouts for Ireland, Greece and Portugal and Ms Merkel is the pivotal player in efforts to resolve the eurozone crisis now in its third year.
Mr Gilmore also said Ireland aims to return to the bond markets by the end of next year, but it will happen gradually and not "in one big bang".