EU Prepares For Spanish Bailout, Newspaper Says

According to the German newspaper Frankfurter Allgemeine are EU officials ready to start talks about a bailout for Spain, as the nations banks are having increasingly trouble with their funding in the interbank market. European banks are said to have a total exposure towards Spain of 600 billion euro.

“We are meeting in Brussels next week to lead.”

Anonymous EU Officials

Spanish Prime Minister José Luis Rodríguez Zapatero

Frankfurter Allgemeine reports this morning that EU officials will start talks about a bail out for Spain, citing unnamed sourced in Berlin. According to the newspaper, the situation had deteriorated so much that they did not want wait until the EU summit on Thursday.

It also said neither the European Commission nor the ECB excluded an aid package.

The paper quoted Spanish officials as denying that they are about to ask for EU aid, and immediately pointed out that Greek officials made the same claims before.

The trigger is the freeze in the inter-banking market last week as the markets have lost confidence in the Spanish banking sector, Frankfurter Allgemeine writes.

In a separate news report, FA reports that Barroso and Trichet are worried about the state of Spanish banks, and have pleaded for aid.

Silence In Spain

There is no whiff of any of this in the Spanish press this morning.

El Pais reports on the latest BIS statistics, citing that the total exposure of European banks to Spain is 600 billion euro.

Probably enough to bring the whole European “house of cards” down.

Spain has been the beneficiary of intra-EU credit flows to a much larger extent than Greece, Portugal, and Ireland.

The latest statistics from the Bank of International Settlements (BIS) show that French banks have outstanding credit in  Spain, mounting to a total of 205 billion euro, more than half of which to Spanish banks.

The exposure of German banks is 176 billion euro – mostly to companies and households.

US banks stands for 140 billion, while UK banks have an exposure of 115 billion euro.

The Spanish central bank estimates the extent of the bad loans to be 166 billion euro, of which only a quarter has been written off so far.

The Spanish bank bailout fund is “only” 99 billion euro. The acute problem now is that Spain has immediate need for financing as market interest rates are rising sharply.

The newspaper also reports that France is getting nervous about the effect of the crisis on its own liquidity.

In a short comment, Frankfurter Allgemeine makes the point that the EUR 750 billion rescue umbrella is just another bank bailout package.

A 705 Billion Euro Problem

The articles in El Pais quotes the BIS saying that while the single currency brought a greater diversification of risk, it increases the risk of a contagion if any of the countries are facing solvency problems.

“Between Ireland, Portugal and Greece, the euro-zone institutions 705 000 millions play is proving the enormous risk concentrated only with Spain,” El Pais writes.

Part of the problem is that Spanish banks have significant risk exposure of themselves, with the greatest exposure in Portugal totaling 110 billion euro, of witch 2/3 in the non-financial private sector, El Pais points out.

Here’s a copy of the latest BIS report, released yesterday.

EU Denies Spanish Bailout

According to Zero Hedge, the EU commission says that the bailout information in the German newspaper today is “completely untrue.”

“A potentially destabilizing report appeared earlier today in the Frankfurter Allgemeine Zeitung (FAZ), according to which countries in the EU are preparing to bail out Spain, which has immediately prompted denials out of both the EU Commission, which claimed that the “report on aid for Spain is completely untrue.” Of course, in January Joaquin Almunia almost ate that Bloomberg reporter who, for the first time ever, suggested that the EU would need to bail out Greece. Four months later Greece was bankrupt and the EU was on hook for a cool trillion. And in adding to the ongoing contradictions, Spain’s Treasury Secretary has said Spain has no problem financing its debt, even as it was reported that Spanish banks have raised a record €85.6 billion in ECB funding, and Spain’s Ocana understated that the “liquidity freeze in Spain in foreign markets is a problem.” On the other hand, of course Spain has no problem in “financing” its debt – the ECB is gladly monetizing it all. Lastly, the fact that Spanish unions have called for a general strike is likely going to shift the balance of power to the truth instead of the baseless propaganda, and within a week or so, Spain will be another raging Greece,” Tyler Durden at Zero Hedge writes.

Read the rest at www.zerohedge.com.

Related by the Econotwist:

EU Deficit Increased By14 Billion Euro In First Quarter Of 2010

Fitch Gives EU Bailout Tripel-A Rating

Europe’s Bailout: From Bad To Worse

Why Optimists Are Wrong About The Euro Zone

Spain Loses AAA Rating – Here’s The Full Report

European Banks: “Leman Times Ten”

Euro-Slide Continues After Spanish Bank Rescue

Euro Collapse As Greek, Portugese And Spanish Spreads Widen

Attacks Against Spanish Financial Markets?

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3 Comments

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3 responses to “EU Prepares For Spanish Bailout, Newspaper Says

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