Spain denies bailout request imminent

Spain's deputy prime minister denied reports Friday it is close to asking for a bailout from the European Union.
A protester addresses demonstrators opposed to banks’ evictions of families from their homes for mortgage arrears in Madrid on Friday. European politicians worry that Spain won’t be able to raise enough money to bail out its debt-laden banks on its own. (Paul White/Associated Press)

Spain’s deputy prime minister denied reports Friday it is close to asking for a bailout from the European Union.

Soraya Saenz de Santamaria said it will not act until receiving evaluations from the International Monetary Fund on Monday and then two independent auditors Spain has hired.

The economy ministry has said those independent assessment are expected by June 21 at the latest.

Various media reported Spain will become the fourth country to be rescued, and that a decision could come as early as Saturday, after a conference call among eurozone finance ministers.

Saenz de Santamaria said that "no meeting is planned," but would not confirm or deny whether some kind of contact would take place.

Investors worry that the result of a Greek election on June 17, if it suggests Greece will end up defaulting on its loans, will create turmoil that spreads to Spain and undermines its financial ability to support its banks.

Spain is struggling through a recession and its banks are burdened with bad loans from a collapsed housing bubble.

On Friday, the International Monetary Fund said it was estimating that Spanish banks need at least a €40-billion ($49.87-billion US) capital injection following a stress test it performed on the country's financial sector.

The lending institution said Spain's financial sector is well managed but vulnerable. It recommended that banks raise capital by an additional unspecified amount beyond the €40 billion to properly restructure.

Yesterday, as Prime Minister Mariano Rajoy admitted for the first time that he was discussing with EU leaders how to help Spanish banks, Fitch Ratings downgraded Spain’s credit rating by three notches to BBB.

That’s two steps above investment grade, the level at which large investors such as pension funds, are able to buy a country’s bonds.

Fitch estimated the cost of rescuing the banks at as much as €100 billion, compared with its previous projection of €30 billion.

A rescue for Spain would require far more funds than anything provided already to Greece, Ireland and Portugal.

With files from The Associated Press