Tue, May 22, 2012 - Page 10 News List

Spanish government denies banks need foreign assistance

AFP and AP, MADRID, CHICAGO and BERLIN

Spain denied yesterday that it needed any foreign help for its banking sector, which is staggering under the weight of loans that turned sour after a 2008 property crash.

“No external help of any kind is needed,” Spanish Minister of Economy and Finance Luis de Guindos told reporters at a forum, adding that a state-backed restructuring fund would inject more money if necessary.

The government was yesterday scheduled to pick two independent auditing firms to examine how deeply the country’s banks are exposed to the collapsed real estate sector, Spanish Prime Minister Mariano Rajoy said on Sunday.

Rajoy, speaking on the sidelines of the NATO summit in Chicago, told reporters that he expected the results of the audit to be released in a month.

Amid growing concerns that Spain could need help from eurozone partners to save its banks, Rajoy spoke with German Chancellor Angela Merkel for an hour-and-a-half during a boat trip on the Chicago River, a German official said.

Rajoy denied on Saturday that the banking sector would need to be rescued by European partners.

The decision to hire auditing firms was part of drastic reforms announced this month that would force banks to set up a new 30 billion euro (US$39 billion) financial cushion and remove risky property assets from their accounts.

Yesterday, de Guindos said Spain’s recession-bound economy would shrink again in the second quarter of this year.

“The second quarter will show a fairly similar performance to that of the first quarter,” he told journalists.

Spain’s economic output contracted by 0.3 percent in the first quarter of this year and by the same amount in the last quarter of last year.

Meanwhile, a German official said Berlin continued to oppose the idea of jointly issued bonds for the eurozone, which French President Francois Hollande has suggested could be used to fund economic growth.

Hollande has agreed to discuss proposals to generate economic growth with Merkel, and said last week those could include so-called eurobonds.

However, Germany has said that such bonds would reduce pressure for heavily indebted countries to get their financial house in order.

German Deputy Finance Minister Steffen Kampeter told Deutschlandfunk radio yesterday that they would be “a prescription at the wrong time with the wrong side effects.”

“We have always said that as a first step we need solidity in European finances and that is the fiscal compact,” he said.

Merkel championed the -budget-discipline pact, which Hollande has criticized.

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