MADRID — Spanish Prime Minister Mariano Rajoy said Thursday that he was in talks with fellow European leaders about shoring up this nation’s troubled financial system, with a deal possibly taking shape behind the scenes that could see Madrid ultimately receive what some have dubbed a “bailout lite.”
Rajoy said at a news conference that he was waiting to determine how much cash the country needs to stave off a full-blown banking crisis before settling on a final figure needed to recapitalize Spain’s ailing banks. The International Monetary Fund is scheduled to give its estimate on Monday, though analysts said on Thursday that the amount appeared to be about $50 billion. Rajoy said he would also wait for the results of independent audits due later this month.
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“After that I will give my figure, and the government will say what the system needs to be recapitalized,” Rajoy said during the news conference with Dutch Prime Minister Mark Rutte in Madrid. “I’ve been talking to my European Union colleagues, and to Prime Minister Rutte, to make a decision on this matter.”
Rajoy’s remarks came on a day of mixed economic news for a nation whose financial situation has become more and more urgent. Earlier in the day, the government in Madrid pulled off a successful bond sale only two days after officials warned that investors were closing the door to lending the nation more cash. But the strong showing was tempered later Thursday when the Fitch ratings agency announced it had downgraded Spanish bonds three notches — to BBB from A. Fitch cited the nation’s soaring debt and bank crisis for the action.
Hopes that Spain might be close to securing aid from the European Union eased market tensions during the trading day. Investors boosted stock markets across Europe, reflecting China’s decision to cut its key lending rate. But they also appeared to be taking heart in an emerging plan that could become a face-saving compromise between the German and Spanish governments.
Financial industry sources describe the plan as a smaller-scale bailout that could lend Spain an estimated $65 billion to $80 billion, significantly less than previous European Union rescues offered to Greece, Ireland and Portugal. Although the rescue funds would be channeled through the Spanish government, they would be earmarked strictly for the recapitalization of banks and could not be used to cover budget shortfalls, the industry sources said. Thus, Spain could potentially avoid many of the humiliating conditions — such as demands for independent auditors and more budget cuts — that were attached to other nations’ bailouts.
Such a proposal could be palatable to the Germans, who have opposed calls in Madrid to have European rescue funds pumped directly into Spanish banks. A direct intervention would have allowed Rajoy to avoid the embarrassment of going hat in hand for help only six months after coming to power. But German officials have argued that the action would violate the rules of Europe’s official rescue fund, which is designed to lend only to national governments.