Spain Requesting $100 Billion Euro Bailout This Weekend Say E.U. Finance Ministers
[UPDATE: 6-10-12: 10:20am]
Spain has requested up to $125 billion euros to bail out its ailing banking industry. Investors across Europe were relieved at the bailout request in which many feared Spanish pride would prevent them from asking. Spain is the largest of the nations so far asking for bailouts and is Europe's fourth largest economy. Unlike Greece, Spain's government spending is under control, the private banking sector is what's in trouble after failing to solve the real estate fall out of 2008.
Spain is expected to request up to $100 billion euros this weekend during a conference call with other E.U. finance ministers. Spain's banks on in the edge of falling into a massive failure and the government has already spent $15 billion bailing out smaller banks that made risky bad loans.
The bailout further complicates Europe's financial crisis, with Greece voting on June 17th on a new Prime Minister, as the nation begins to tackle whether is wants to exit the 17 nation euro-zone block.
Asked if he expected Spain to request help, Swedish Prime Minister Fredrik Reinfeldt told public service radio: "I think that is everybody's assessment. There is even talk about amounts up to 80 billion euros."
Spain is likely to become the fourth country requesting a bailout from the E.U. Spain's biggest failed bank, Bankia, will cost 23.5 billion euros to rescue and its shareholders have been wiped out.
Bundesbank president Jens Weidmann said Spain should turn to the European Financial Stability Facility (EFSF) rescue fund if it could not afford the bank recapitalization bill.
The race to resolve the banks' troubles comes after Fitch Ratings cut Madrid's sovereign credit rating by three notches to BBB, highlighting the Spanish banking sector's exposure to bad property loans and to contagion from Greece's debt crisis.
If Greece were to exit the euro as many have begun speculating might happen, it would trigger a financial tsunami and drag the continent back into a deep recession. Spain's turmoil is only further aggravating the already poor situation.
There is however significant change in mood and thought in Europe on how to handle the problem, with France electing a new socialist prime minister and Greeks will be going to the polls soon, being fed up with deep austerity cuts, is set to vote out the current government and bring in a more social liberal government.
Many have argued that austerity cuts only work to reduce small problems, but at this late stage, only an injection of capital and liquidity will work. European economist point to the United States, which bailout out several banks, and managed failing banks to be bought by more stable banks, and the federal reserve which cut interest rates to help credit flow. Despite republican rhetoric, most now believe it worked from keeping the U.S. from sliding backwards even further and helped to stabilized the nation's financial sector.
Spanish pride has been cited as a reason Spain might not take a bailout, or consider a "bailout lite" and not everyone is in favor of it at all.
"I'm not particularly keen on a bank bailout because it's totally unfair. Banks should work like any other business. If they have profits they can keep them, if they lose money they have to assume the losses," said Javier, a Madrid resident who did not want to give his name or age.