Spain has requested financial aid from the eurozone to recapitalize its stricken banking sector. But its finance minister has denied that it is a bailout and the exact figure of the assistance package is still unknown.
The Spanish government will request financial support for its banks from its eurozone partners, but it does not constitute a formal bailout, Economy Minister Luis de Guindos told a press conference in Madrid on Saturday.
"As this is a request for financial support, it has nothing to do with a bailout, nothing at all," said de Guindos, who declined to outline the amount to be received from Europe.
"Spain declares its intention to apply for European funding to capitalize the banks that need it," de Guindos added.
"The amount will be enough to cover what is necessary as well as an additional margin."
He explained that the money would be received by the Spanish rescue fund FROB, which would in turn "inject the money into those financial institutions that need it."
De Guindos said that Madrid wished to help restore confidence in the eurozone and its reforms had been greeted with support from other European member states.
Worth "up to 100 billion euros"
The rescue package could be worth up to 100 billion euros ($125 billion) but the International Monetary Fund (IMF) will not make a contribution, eurozone finance ministers confirmed on Saturday.
The European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) will provide the capital, a statement by the finance ministers read.
The breakthrough was welcomed by German Finance Minister Wolfgang Schäuble.
"I welcome, like other Eurogroup colleagues, the Spanish government's determination to recapitalize (the banks) via the European rescue funds, the EFSF and ESM, with corresponding conditions," he said in a statement.
IMF chief Christine Lagarde also welcomed the package, saying that her organization "stands ready at the invitation of the Eurogroup members to support the implementation and monitoring of this financial assistance through regular reporting."
A statement from the Group of Seven (G7) developed nations, released by the US Treasury Department, called the financial assistance "important progress as the euro area moves forward on greater financial and fiscal union." US Treasury Secretary Timothy Geithner also said expressed support for the eurozone's "concrete steps on the path to financial union."
The bailout makes Spain, whose banking sector was hit by a boom-and-bust real estate debacle, the fourth country in the 17-member eurozone to be propped up with financial help.
Developments ahead of schedule
The development comes despite the fact that Spain said it would wait for independent audits due on June 21 before making a decision over a bailout. Madrid has come under intense pressure to act more quickly in recent days.
The IMF published a report that found that Spanish banks require at least 40 billion euros to plug the gap in its finances after it carried out a stress test on the country's financial sector. That report was released three days ahead of schedule, reflecting growing urgency over the situation.
Spain was hit with a credit downgrade on Thursday by the rating agency, Fitch, which estimated that Spanish banks would require up to 100 billion euros in aid. On Friday, Moody's indicated it might also downgrade Spain.
The weakness of the Spanish economy has sent waves of alarm through the eurozone in recent weeks. It is currently in the grips of its second recession in three years and one in four citizens are unemployed, despite a raft of austerity measures, including making it cheaper to hire and fire, and tax hikes, which the conservative government of Prime Minister Mariano Rajoy has adopted since coming to power in December.
The Spanish bailout could put Italy in the spotlight next, which is struggling under the second-highest debt rate in the eurozone.
sej,slk/ipj (AFP, AP, Reuters, dpa)