Spain will become the fourth Euro Zone nation to receive a European financial rescue package, after the region's finance ministers announced they were prepared to provide up to €100 billion in financial assistance to the country.
Spain is yet to specify the amount it requires to support the needs of its beleaguered banking sector, and a formal request is likely to be made after the results of two independent audits on the banks due by June 21.
However, its conformation that it would seek help, after months of insisting that it required no support, should help calm markets, jittery ahead of the re run of the Greek elections due to take place on June 17.
“The loan amount must cover estimated capital requirements with an additional safety margin,” the Euro Zone leaders said. The funds will be channelled through Spain's Fund for Orderly Bank Restructuring (Frob) through which all the recent support to the institutions such as Bankia has been provided. Unlike the other three nations that have received financial assistance, Spain will only face conditions pertaining to reform of its banking sector “a recognition of the significant fiscal and labour market reforms” it had undertaken, the Euro Zone ministers said (it added that the ongoing progress on these would continue to be monitored).
In addition, the IMF will not provide financial aid but has offered support in the form of regular reporting on the assistance scheme's progress.
On Friday, the IMF published a report on the Spanish banking sector concluding that it would need €40 billion to comply with Basel III requirements and more for the restructuring and reclassification of loans.
Earlier in the week, Fitch Ratings cut the Spanish government's credit rating over concerns about its ability to meet the needs of its banking sector.