Brussels approves Spain state aid and bank guarantee | Business| Economy and finance news from a German perspective | DW | 27.06.2012
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Brussels approves Spain state aid and bank guarantee

The European Commission has endorsed billions in Spanish state aid and guarantees for its lender Bankia. The approval is linked to a promise by Madrid to provide a restructuring plan for the banking sector.

The European Union's executive arm on Wednesday approved a 4.5-billion-euro ($5.62- billion) package of Spanish state aid and a 19-billion-euro guarantee for its troubled lender Bankia.

"The European Commission has approved under EU state aid rules a conversion of existing state-owned preference shares of 4.465 billion euros into equity and a liquidity guarantee in favor of the Spanish BFA Group and its subsidiary Bankia," the Commission said in a statement.

The approval is temporary in so far as Spain will still need to provide a restructuring plan for BFA, and Bankia in particular, within the next six months.

Economic recovery not in sight

"The endorsed aid does not include announced capital injections sought by BFA and which are currently under assessment by the Spanish authorities," the statement added.

Eurozone finance ministers had agreed to a loan of up to 100 billion euros for the Spanish government to support domestic banks suffering from bad assets following the collapse of the real estate bubble in the country.

The Commission's approval of Spanish state aid came on the back of news from the Bank of Spain which reported a deepening of Spain's economic downturn in the second quarter of this year. The central bank cited the deterioration of several key indicators such as private consumption, domestic car sales and exports.

hg/sej (Reuters, AFP, dpa)