Bloomberg News

Germany Says Spain Must Restrict Aid to Viable Banks

July 19, 2012

Financial aid sought by Spain from its euro-area partners to shore up banks must be restricted to viable lenders, the German government said.

Spain will face conditions in drawing as much as 100 billion euros ($123 billion) in aid for its banks, “of which the most important is that they will be very carefully scrutinized to see which ones can survive,” German Deputy Finance Minister Thomas Steffen told state representatives in the upper house of parliament in Berlin today. “Banks that aren’t viable must be treated differently to those that are.”

Steffen said he has “every confidence” that the European Commission, the European Union’s executive body, will apply its subsidy rules in ascertaining whether Spain is using aid appropriately by not propping up banks without a sustainable business model. Aid conditions also foresee remuneration caps for senior bankers working at lenders in receipt of aid, Steffen said.

German lawmakers have signaled that they will approve legislation that will anchor aid for Spain in national law in a parliamentary vote today. In meetings this week, senior members of Chancellor Angela Merkel’s government have sought to allay lawmakers’ misgivings, including concerns that the Spanish government may not be liable for aid guarantees and that aid may be misappropriated to prop up so-called zombie banks.

Merkel needs a simple majority for the aid bill in the lower house. The session starts at 2 p.m. in Berlin. German states represented in the upper house, which is controlled by opposition parties, are not required to vote.

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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