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Spanish Bank Bailout Heightens Pressure on Madrid

  • VOA News

Spain's Prime Minister Mariano Rajoy speaks during a news conference at his Popular Party headquarters in Madrid, May 28, 2012.

Spain's Prime Minister Mariano Rajoy speaks during a news conference at his Popular Party headquarters in Madrid, May 28, 2012.

Economic pressures are growing on Spain after the government took over the country's third largest bank with a $24-billion bailout to account for its toxic real estate loans.

Prime Minister Mariano Rajoy said Monday that the debt-ridden government's takeover of Bankia would not force the Spanish government to seek a bailout from its European neighbors. With more than $40 billion in bad loans, Bankia was one of the hardest hit Spanish financial institutions during the country's real estate collapse, although some analysts say another $37 billion in government assistance may be needed to prop up other banks.

It was uncertain how the bailout would be paid for. A senior economist with the British bank Standard Chartered, Sarah Hewin, said the euro currency bloc's rescue fund could provide the funds.

"The European bailout funds are there to help with the banks, particularly once we have the European Stability Mechanism up and running in July," said Hewin. "That has the ability then to support banks rather than having to support the governments as a whole."

Some Spaniards, including Javier Casas, a justice sector administrator, voiced their anger at the thought they should be responsible for the banks' financial missteps.

"I don't think it's right that we have to pay for debts of a private entity whose directors and mangers generated the debt," said Casas.

With the growing Spanish banking crisis, investors showed new concern about debt sold by the Madrid government.

Interest rates on Spanish bonds rose to more than five percent higher than those sold by economic powerhouse Germany. It was the biggest interest rate spread between the two countries in the 13-year history of the euro currency.

Meanwhile, financial market concerns eased Monday in Greece, as political surveys released over the weekend showed new support for the conservative New Democracy party. It supports adherence to the austerity plan Athens agreed to earlier this year in exchange for its second international bailout in two years.

After a splintered election earlier this month, Greece's fractious political parties were unable to forge a new coalition government and a new election is set for mid-June.

Voter sentiment seemed to be trending toward the radical left Syriza party that has called for rejection of the severe spending cuts. If the conservatives win enough seats in the parliamentary voting, they may be able to form a new government with the socialists, who also favor the bailout terms.

Some information for this report was provided by AP and AFP.