Bloomberg News

Merkel Ally Rebuffs Rajoy Call for Direct Aid for Spain’s Banks

May 29, 2012

Spanish Prime Minister Mariano Rajoy’s plea to euro-area partners to let struggling banks tap the permanent bailout fund directly won’t get German support, said a parliamentary ally of Chancellor Angela Merkel.

Any request for aid for banks must be made by sovereign states, said Norbert Barthle, the Christian Democrats’ budget spokesman in parliament, citing the need for governments to act as guarantors for help. Rajoy said yesterday that banks should be able to request direct help from the European Stability Mechanism, the permanent euro-area bailout fund that’s slated to be in operation in July.

“Direct help for banks is out of the question, that won’t fly,” Barthle said in a telephone interview today. “There has to be the intermediary of sovereign government. It’s all about liability and the German position is clear.” The temporary rescue fund, the European Financial Stability Facility, has provisions for helping banks through the medium of host governments, Barthle said.

Rajoy is struggling to shore up Spain’s banks amid efforts to cut spending and a surge in the cost of selling bonds. Spain today backtracked on a plan to use government debt instead of cash in a 19 billion-euro ($24 billion) bailout of BFA-Bankia.

The situation for Spanish banks is “very worrying,” Barthle said from his electoral district in the southwestern state of Baden-Wuerttemberg. “It may not take much more pressure on the country for it to require external help.” While Rajoy will probably continue to avoid having to seek a bailout, “the EFSF is there and envisages help for banks indirectly.”

Merkel seeks parliamentary approval in June for setting up the ESM. Germany will put up the biggest share of the fund’s guarantees and so-called paid-in cash.

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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