The Spanish government will not allow any bank or regional government to collapse “otherwise the country would fall,” Prime Minister Mariano Rajoy warned on Monday.
The PM made the comments to the press but failed to calm the markets that had reacted to Spain’s biggest bank bailout of 23 billion euros, handed to Bankia last week.
The Bank of Spain estimates the total of potentially loss-making real estate assets left over from the 2008 housing bust to be around 180 billion euros, of which Bankia holds some €32 billion.
“We are not going to let any region or financial entity fall, because otherwise the country would fall,” he said.
Despite the bailout Bankia shares plummeted losing 13% on the Madrid stock market. It has now lost two-thirds of its value since shares were floated in July 2011.
“We took the bull by the horns because the alternative was collapse,” explained Rajoy.
The PM also claimed that most of Spain’s problems stemmed from the crisis in Europe and Greece, more so than Bankia.
“There are major doubts over the eurozone and that makes the risk premium for some countries very high. That’s why it would be a very good idea to deliver a clear message that there’s no going back for the euro,” he said.
However, as voters in Greece seem to be favouring pro-bailout parties in the run up to elections in June, reducing the likelihood of a Greek exit from the euro, the rise in Spain’s borrowing costs shows that investors are still nervous.
Spanish yields have hit their highest level since November and while the London stock market rallied slightly, Spain’s lost two points. The Ibex index is at a nine-year low.
Rajoy once again dismissed comments from French president François Hollande who predicted a mass of Spanish banks will need rescue packages from Europe’s bailout funds.
“There will be no rescue of the Spanish banking sector,” he said.