Sat, Jun 02, 2012 - Page 10 News List

No bailout plan for Spain currently in works: IMF

’DANGER ZONE’:The head of the World Bank said that if Greece withdrew from the euro and European leaders did not decisively prop up the banks, chaos could ensue

AP, AFP and Reuters,Washington and LONDON

The IMF said it has not been asked by Spain for a bailout and has not begun preparing one.

IMF spokesman Gerry Rice spoke on Thursday as Spanish Deputy Prime Minister Soraya Saenz de Santamaria flew into Washington for talks with IMF Managing Director Christine Lagarde and US Treasury Secretary Timothy Geithner.

The officials discussed how Spain could finance an overhaul of its banking sector.

Saenz de Santamaria said that it was coincidental that she was coming to Washington in the midst of the banking crisis because her meetings were scheduled months ago.

The government nationalized a major bank earlier this month. It now says it will need to inject US$23.6 billion in public money into the bank — more than twice what the government initially estimated.

Doubts over how recession-hit Spain will handle the bailout have sparked concerns that the country could soon follow Greece, Portugal and Ireland in asking for -financial assistance.

Lagarde called her meeting with Saenz de Santamaria productive. She also denied a Wall Street Journal report that the IMF was drawing up plans for a rescue loan for Spain.

“There is no such plan,” she said.

Saenz de Santamaria said that she discussed with Geithner some of the ideas being discussed in Europe about how to set up a fund to recapitalize European banks.

“The problem is not Spain as a country,” she said. “But our financial system in a given moment has needs just like the other states had at other times.”

“We were talking about the possibility that the banks, not only Spain’s but also in other countries who need it, could access funds directly without intervention from the governments and without conditions,” she said after meeting Geithner.

“The treasury secretary indicated that we are working in the same direction and that we must find a solution for the banks,” she added.

Meanwhile, European -leaders must be ready to recapitalize banks in the event of a Greek exit from the eurozone currency bloc and assure funding for Spain to prevent an economic collapse, World Bank President Robert Zoellick said yesterday.

If Greece withdraws from the euro and European leaders do not act decisively to prop up banks, Zoellick wrote in a column in the Financial Times, the resulting crisis could push the continent into a “danger zone.”

“Eurozone leaders need to be prepared — psychologically and through the European Stability Mechanism (ESM) — to recapitalize banks,” Zoellick wrote.

“In the eurozone, the guarantees of some national sovereigns are unlikely to be sufficient and only that of the ‘euro-sovereign’ will suffice,” he added.

“It is far from clear that eurozone leaders have steeled themselves for this step,” said Zoellick, whose five-year term at the head of the World Bank ends on June 30.

On Thursday, the European Commission said there was no possibility for eurozone banks to be directly recapitalized using the ESM, while Germany and other EU conservatives have insisted that national governments must take responsibility for any money borrowed from the ESM.

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