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PP to eschew bad bank that places burden on taxpayers

Former Finance Minister Montoro prefers "intermediate" solution for toxic assets

The economic spokesman of the Popular Party, Cristóbal Montoro, said Monday there are "intermediate" solutions to resolve the problem of impaired assets on Spanish banks' books other than setting up a so-called bad bank to absorb them at taxpayers' expense.

"There are intermediate formulas that have been applied in other countries to clean up the banking sector," Montoro said in comments to the COPE radio station. "There are real estate assets in the banks' books at prices that don't have a solution because there is no demand for them at those prices. They have to be placed in the market."

The Bank of Spain estimates that as of the end of June the country's lenders had 170 billion euros in problematic loans, most of which derive from their exposure to the property sector, which has been in a slump since around the start of 2008 after a boom turned to bubble and burst.

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Montoro said the government needed to "assume part of the responsibility" for clearing up the banks' balance sheets but ruled out any option that "means taxpayers paying for the impaired assets."

Montoro, who was finance minister in the former PP government of José María Aznar, said if the state does assume the property assets of the banks, it could "ease access to housing for many people in Spain and also other Europeans who want to buy a home in Spain."

Montoro has been touted as a possible economy minister under Prime Minister-elect Mariano Rajoy. However, he declined to say Monday whether he would be a member of the incoming Cabinet.

Rajoy has pledged to meet Spain's commitments to reducing the budget deficit as one of the cornerstones of his mandate. He also plans to introduce labor reforms that tackle the problem of high unemployment in Spain.

Asked how the government plans to tackle the economic problems facing the country, Montoro said: "We should use the positive path opened up by the European Union summit [of last week], opting for more rigor, austerity and balancing the public accounts."

He said the incoming administration sees no quick fix for the job market's problems. "In all certainty jobs will not be created in 2012," he said. "More time will be needed to carry out reforms."

Montoro said the crux of the government's austerity drive would be through tighter control of spending rather than higher taxes. "The main taxes can't be hiked because the economy is in a bad way," he said. "That would bring us more unemployment, more problems and less economic growth. We have to draw up a very tight budget; reform the healthcare system but not cut it. Nurses and doctors know that there is a lot of waste."

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