News Column

Spain Must Guarantee Bank Debt Despite EU Aid

July 6, 2012
Spanish euro coin

A plan to let eurozone bailout funds loan money directly to Spanish banks will not come into effect before mid-2013 -- and will not entirely relieve Madrid of responsibility for banking troubles, a European Union official said Friday.

"It would be very much not the case" that the European Stability Mechanism (ESM), the new eurozone rescue fund, would pick up the bill if Bankia -- one of the Spanish lenders due to be bailed out -- were to go bust, the source said.

Under the plan agreed at an EU summit last week, Spanish bank recapitalizations would be handled by the ESM, but only after a single eurozone bank supervision regime is established. This will not happen until "the first half of 2013," the EU official said.

Once the new regime is set up, debt from the loans to the Spanish banks will "disappear" from the Spanish government's accounts and will be transferred to the ESM. But Madrid will have to provide a "contingent liability guarantee," promising to stand in if banks fall back on their loan repayments, the source indicated.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

Story Tools Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters