Strings attached to Spain bank aid

Frankfurt - A bailout of Spain's banks comes with strings attached and Madrid's efforts to cut its deficit must be monitored closely, a top European Central Ban (ECB) official said on Thursday.

"Spain will receive the money from the bailout fund in tranches, with payment depending on whether Spain meets the conditions," the ECB's chief economist Peter Praet told the Financial Times Deutschland.

"Spain has no classical aid programme. But given the interconnectedness between the situation in the banking sector and state finances, we must also keep an eye on the development in the Spanish state budget," Praet said.

Spain insists that a eurozone loan of up to €100bn agreed in mid-June imposes conditions only on the banks, with no new steps required on austerity or broader economic reforms.

But recently, European Commission vice-president and competition chief Joaquin Almunia also insisted that "nothing is free" and that the rescue loan will have a cost, with the detailed conditions to be imposed on the financial sector for the loan still to be determined.

When the bank rescue was announced earlier this month, finance ministers of the 17-nation eurozone said Spain's commitments on reforms and slashing the public deficit would be closely and regularly reviewed in parallel with the loan.