Spanish PM tries to calm markets
(30 May 2012 – Europe) Spain’s Prime Minister, Mariano Rajoy warned that the country cannot afford to let a single bank or regional government collapse as it would bring the entire country to its knees.
In a rare and unexpected appearance before the press, Rajoy failed to calm markets which had reacted nervously to Spain's biggest-ever bailout, the €23.5 billion (A$29.9 billion) rescue of Bankia announced on Friday.
'We are not going to let any region or financial entity fall, because otherwise the country would fall,' he said.
The cost of Bankia's bailout has spiralled over the past three weeks and a revision of its 2011 accounts over that period has seen losses at parent company BFA multiplied by 100.
'We took the bull by the horns because the alternative was collapse,' said Rajoy, explaining why his government was pumping money into a bank created two years ago by the merger of seven troubled savings banks.
Rajoy claimed pressure on Spain's borrowing costs had more to do with worries over Europe and Greece than Bankia.
'There are major doubts over the eurozone and that makes the risk premium for some countries very high,' he said. 'That's why it would be a very good idea to deliver a clear message there's no going back for the euro.'
On Monday night, the company was set to report the biggest loss in Spain's banking history - of somewhere above €3.5 billion. It had originally declared just €30 million in losses.
Nervousness that other Spanish banks may be hiding similar-sized holes saw Spain's borrowing costs soar once more, with investors demanding 6.5 percent interest on future 10-year debt.
Rajoy dismissed growing rumours that, as French president Francois Hollande has predicted, a swathe of Spanish banks will need rescuing by Europe's bailout funds. 'There will be no rescue of the Spanish banking sector,' he said.
'We are not going to let any region or financial entity fall, because otherwise the country would fall,' he said.
The cost of Bankia's bailout has spiralled over the past three weeks and a revision of its 2011 accounts over that period has seen losses at parent company BFA multiplied by 100.
'We took the bull by the horns because the alternative was collapse,' said Rajoy, explaining why his government was pumping money into a bank created two years ago by the merger of seven troubled savings banks.
Rajoy claimed pressure on Spain's borrowing costs had more to do with worries over Europe and Greece than Bankia.
'There are major doubts over the eurozone and that makes the risk premium for some countries very high,' he said. 'That's why it would be a very good idea to deliver a clear message there's no going back for the euro.'
On Monday night, the company was set to report the biggest loss in Spain's banking history - of somewhere above €3.5 billion. It had originally declared just €30 million in losses.
Nervousness that other Spanish banks may be hiding similar-sized holes saw Spain's borrowing costs soar once more, with investors demanding 6.5 percent interest on future 10-year debt.
Rajoy dismissed growing rumours that, as French president Francois Hollande has predicted, a swathe of Spanish banks will need rescuing by Europe's bailout funds. 'There will be no rescue of the Spanish banking sector,' he said.
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