Spain managed to secure financial aid for the EU in order to shore up its troubled banking sector. After a conference call on Saturday with euro zone finance ministers, it was agreed that Spain could receive up to 100 billion euros to recapitalize it ailing banks that are at risk of a bank-run should the crisis deepen.
After an audit report is done on the banks in need of assistance, the Spanish government would be able to specify the precise amount it requires in aid.
Spain is now the fourth euro zone member country to seek a bailout, after Greece, Ireland and Portugal did. The heavily indebted Spanish government has been troubled by an ailing banking sector beset by bad debt from Spain’s property bubble burst. Spanish bond yields reached record highs making government borrowing costs grow and raising concerns over its ability to raise capital on the debt markets.
The aid to Spain is not considered a “full bailout” like that given to Greece, Portugal and Ireland. Spanish Prime Minister Rajoy said it would only be considered a bailout if Spain had not introduced radical fiscal, labour market and financial sector reforms. This new financial aid would be more considered a credit line directed at banks such as Bankia, which is made up of the merger of seven regional savings banks that was nationalised by the government last month and said it had a capital shortfall of 19 billion euros.
The news of EU financial assistance helped calm markets which helped euro open higher on Monday. Euro gapped higher against the dollar from Friday’s close and hit a two week high early in Asian trading. Also it helped alleviate fears ahead of uncertainty over the outcome of the upcoming Greek elections on Sunday, June 17.