Spain to officially request a bailout

Economy minister Luis de Guindos
Economy minister Luis de Guindos

Eurozone leaders are today expecting Spain to formally request up to 100 billion euros to recapitalise it’s banking sector.

Discussions are expected to take place this week to agree on the details of the bailout leading to a European Union summit on Thursday night in which EU leaders will address Spain’s sovereign debt crisis.

Spanish economy minister Luis de Guindos says the details of the loan will be agreed in a  memorandum of understanding which will be discussed by eurozone ministers in July.

Spain has seen it’s borrowing costs steadily increasing over recent months twice tipping over the 7% mark. On top of this Spain’s admission last week that it does require aid has made investors nervous and fuelled speculation that Spain would need a full rescue similar to that of Greece, Ireland and Portugal.

As part of the load agreement EU leaders are likely to insist on a total restructuring of Spain’s banking sector including the possible creation of a “bad bank” to house bad property debts, and the forced liquidation of insolvent institutions.

Further discussion is also expected on where the money will go. Some suggest the money should go not to Spain’s government but directly into the banks as the government already has a large deficit. However one worry surrounding that option is the lack of control Europe will have over how the money is spent.

“Contracts are made among countries, not banks,” said German chancellor Angela Merkel.

“We will discuss this at the European summit, and this possibility is absolutely open to Spain if there is progress in the next few months,” Luis de Guindos said in Luxembourg last week. “The process of recapitalisation is not instantaneous.”