Currently Spain is struggling to recapitalize newly nationalized lender Bankia and smaller Spanish banks weighed down by the collapse of a Spain’s real estate bubble that began in 2008 and continues to struggle today.
The euro lowered in early trading on Tuesday after Spain’s treasury minister said high borrowing costs means credit markets are closing to Spain.
Spain plans to issue 1-2 billion euros in medium and long term 10-year debt on Thursday in a critical market test of demand for Spanish debt.
Germany has opposed Spain’s demands for Europe’s bailout fund to be able to provide money directly to banks since the current euro zone regulations require aid to be disbursed through governments.
However, German Chancellor Angela Merkel signaled that the resources to handle the euro zone’s banking problems are still available.
“All the instruments are available to to guarantee the safety of banks in the euro zone” she said in a statement.
Merkel said yesterday that systemic banks may need supervision across the euro zone as EU leaders consider possible steps toward a “political union” and possible debt sharing in the future.
Bankia’s request for 19 billion euros to repair its balance sheet reflects its accelerating losses and strains on Spain’s capacity to absorb them.
Spain supports the creation of a “banking union,” which includes an integrated deposit guarantee funds and supervision, Economy Minister Luis de Guindos announced on May 31st, reflecting the opinions of Spanish PM Mariano Rajoy.
Last week Guindos maintained his government’s view that the nation won’t need an overall bailout, saying it’s not possible to rescue Spain, which is still weighed down by real estate losses and overspending in its autonomous regions.
Today, Spain’s Budget Minister Cristobal Montoro said that debt markets are basically closed to Spain and that it needs outside help.
“Spanish banks don’t need excessive amounts to recapitalize, and the question is where that figure comes from,” Montoro said in an interview with Spanish broadcaster Onda Cero earlier today.