Europe to discuss Spain bailout

Finance officials from across Europe are set to hold talks this weekend to discuss a possible bailout for Spain in case Madrid asks for help amid rumours that a request could come as early as Saturday.

The move comes after credit ratings agency Fitch cut Spain's sovereign rating by three notches to BBB on Thursday, highlighting the Spanish banking sector's exposure to bad property loans and contagion from Greece's debt crisis.

EU sources say the Spanish government could formally request financial assistance for its troubled banks this weekend.

So far Spain has denied reports that an announcement on a European rescue plan for its banks is close.

The International Monetary Fund (IMF) is estimating that Spain's banks need a cash injection of at least 40 billion euros.  

Five senior EU and German officials said deputy finance ministers from the single currency area would hold a conference call on Saturday morning to discuss a Spanish request for aid, although no figure for the assistance has yet been fixed.

"The government of Spain has realised the seriousness of their problem," a senior German official said, according to the Reuters news agency.

Soraya Saenz de Santamaria, Spain's deputy prime minister, said that the government had not yet made a decision on whether to seek a bailout for its banks, saying that it was awaiting a preliminary estimate of how much extra capital the banks would need before taking a decision.

The IMF is expected to file its own audit including those figures on Monday, while two independent auditors are due to file surveys later this month.

"It's important to respect the proceedings because it's important to know the ground," said Santamaria. "Before taking any kind of decision one should at least have a first estimate of the ground and the ground means figures."

He added that an agreement needed to be reached before a Greek election on 17 June  which could cause market panic. 

The European Commission's spokesman on economic affairs said Spain had made no request for aid and he would not confirm that talks were planned. But he added that if Spain did make a request, the eurozone was ready to help.

"If such a request were to be made, the instruments are there, ready to be used, in agreement with the guidelines agreed in the past," Amadeu Altafaj said. "We are not at that point."

Speaking in Berlin, Angela Merkel, the German chancellor, said she was not pressing any country to take a bailout, saying it was up to Spain to decide what it wanted to do.

Spain is expected to request aid from the eurozone's 440-billion-euro bailout mechanism, known as the European Financial Stability Facility. The amount will depend on the results of audits being conducted by the IMF and two independent assessors.

Financial industry sources told Reuters on Thursday that a report by the IMF, expected to be made public on Monday, estimated the minimal capital needed by Spanish banks at 40 billion euros rising to 90 billion euros for a fuller recapitalisation.

Fitch said the cost to the Spanish state of recapitalising banks stricken by the bursting of a real estate bubble, recession and mass unemployment could be between 60-100 billion euros or six to nine per cent of Spain's gross domestic product. The higher figure would be in a stress scenario equivalent to Ireland's bank crash.

European leaders have to make difficult decisions to steer the eurozone away from crisis, US President Obama said on Friday.

He said the US would support Europe as it implemented the hard solutions needed to solve the ongoing debt crisis.

He said a deep new recession in Europe would have an impact on the US economy.

Greece's future in the eurozone was a matter for the Greek people, he said, but "further hardship" must be expected if the country chose to leave the euro.

Greeks will go to the polls on 17 June to try and end a political impasse that eurozone leaders say is harming Greece's ability to tackle its economic crisis.