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Spain told to lay out Bankia plans

May 31 2012 09:53 Reuters

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Madrid - Spain must lay out plans for nationalised lender Bankia to the European Commission (EC), a spokesperson for the Commission said on Thursday, adding a domestic solution to the country's bank crisis would be better than a European rescue.

Spain's centre-right government has so far failed to clearly say how it plans to finance a €23.5bn rescue of the country's fourth-biggest lender, leaving markets confused and driving the country's borrowing costs to levels at which Ireland and Portugal sought international bailouts.

Prospects that Spain will not be able to handle losses at its banks have pummeled shares and commodities, while pushing the euro to its lowest in almost two years against the dollar.

"What we need first of all is for the Spanish government to tell us its restructuring plans for Bankia, what options it is considering," said European Commission spokesperson Amadeu Altafaj in a radio interview.

"From there, we will study the plans and see whether they comply with requirements for public aid."

Spain should carry out the refinancing of its banking sector, laid low by a decade of unsustainable lending during a property boom, by market mechanisms or government funds, rather than a European rescue which would have negative connotations, Altafaj said.

"The sooner uncertainties are removed the better," he added.

The European Commission offered direct aid from a eurozone rescue fund to recapitalise distressed banks on Wednesday and proposed giving Spain more time to reduce its budget deficit.

However, permitting the European Stability Mechanism (ESM) to lend directly to banks would require a change to a treaty in the midst of ratification by member states that might come too late for Spain.

Madrid said its state-backed bank rescue fund would issue bonds to inject funds into Bankia, but senior debt bankers said the syndicated bond market is closed to the rescue fund because investors are too nervous to take on Spanish risk.

Spain's Deputy Prime Minister Soraya Saenz de Santamaria is due to meet US Treasury Secretary Timothy Geithner and International Monetary Fund Director General Christine Lagarde in Washington on Thursday.

The deputy PM will outline Spain's measures to tackle its crisis during the meetings, which were convened before Spain's situation reached boiling point, a government spokesperson said.

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