Saturday, June 9, 2012
Spain may be forced to borrow 50 billion U.S. from European Stabililty Fund
Today (June 9) finance ministers from the Eurozone are holding a teleconference on an expected request from Spain for aid. The teleconference was planned after the IMF (International Monetary Fund) issued a report Friday which estimates Spain requires an injection of at 50 billion U.S. dollars to bail their banks out. The IMF did a stress test on the banks.
An Al Jazeera reporter said:"Reports we are getting from various sources suggest that there will be this conference call from Brussels between the 17 finance ministers of the eurozone, the so-called eurogroup. The Spanish finance minister will be among them," "What we believe they will be discussing is the sort of size and shape of the terms attached to a possible bailout for Spain, to inject fresh capital into its banks."" So far Spain has insisted that it does not need a bail out. Spain worries that it will be required to commit to even more austerity measures and will lose control of financial policy. However, given the situation borrowing such a huge amount of money through bonds would be horrendously expensive if even possible.
On Thursday Fitch rating agency cut Spain's sovereign debt rating by three more points to BBB because of the banks exposure to bad loans. The Al Jazeera correspondent concluded with good reason:"It is becoming increasingly clear that the government here doesn't really have a choice; that IMF bill is in for the banks, according to its audit around $50bn, and other institutions put the figure much higher than that. The Madrid government simply doesn't have that kind of money and this banking crisis has to be solved,"
Spain is expected to ask for money from the European Financial Stability Facility. It has available 440 billion euros so would be easily able to provide the money. The big question would be what the conditions would be for receiving the funds. For more see this article.