SPAIN’S FINANCIAL crisis deepened as the stricken lender Bankia sought a bigger government bailout and the prosperous region of Catalonia said it needed Madrid’s help to refinance its debt.
The twin developments underscored the increasing frailty of Spain’s position as it battles to avoid an EU-IMF rescue, something premier Mariano Rajoy insists the country will not need.
Spain’s woes helped send the euro close to its lowest level against the US dollar for two years amid incessant talk of contingency planning for a Greek exit from the single currency,
Shares in Bankia were suspended at the bank’s own request as its board moved to reformulate its annual accounts for 2011, and submit a recapitalisation plan to the Spanish central bank.
The bank is expected to seek an additional €15 billion from the government to cope with property-related losses, a request that comes on top of an earlier public bailout in which it received €4.5 billion.
With other ailing lenders in need of an unknown amount of aid to restore their balance sheets, market investors and the EU authorities fear the eventual requirement might overwhelm the country.
Bankia was one of five Spanish institutions to be downgraded last night by Standard Poor’s, the others being Banco Financiero y de Ahorros, Civica, Banco Popular Espanol and Bankinter.
Standard Poor’s also revised downward its “economic risk” assessment on Spain, an action which followed its downgrade of Spanish debt last month. “In our view Spain is entering a double-dip recession that will likely trigger a large increase in the volume of problematic assets that the financial system will accumulate in 2012 and 2013, which in turn will lead banks to record high credit provisions,” SP said.
Mr Rajoy wants Europe to give the permanent European Stability Mechanism bailout fund the power to rescue banks directly, with the money involved not going on to national debt.
Such a scheme could set a precedent to be followed by Ireland. Germany has resisted the notion. However, Mr Rajoy’s deputy, Soraya Saenz de Santamaria, said Berlin signalled yesterday “that the arguments and requests of the Spanish prime minister are very convincing”.
The escalating crisis in Europe’s fourth largest economy is a major worry for the EU authorities as Spain is probably too big to be rescued by ESM or its temporary predecessor, the EFSF.
Spanish 10-year bond yields rose by 0.13 percentage points to 6.29 per cent yesterday, well above the 6 per cent threshold considered dangerous for weakened countries.
Ms Saenz de Santamaria said the central government would examine “with all caution” requests from regional governments to regain access to capital markets.
Her remarks came as the region of Catalonia, the wealthiest, warned it was running out of options for refinancing debt this year and needs help from Madrid.
“We don’t care how they do it, but we need to make payments at the end of the month,” said Catalonia president Artur Mas.
