financial crisis

EU will wait to rule on bailout extension for Spain

Rajoy administration hopeful of leaving rest of funds untouched but finance ministers say it will depend on deficit target being hit

European finance ministers meeting over the weekend in Vilnius decided to grant themselves two more months to decide whether Spain needs an extension on the bailout for its banks, sources told EL PAÍS.

This decision will be based on whether the country is in a condition to meet its budget deficit target of 6.5 percent of GDP, sources told EL PAÍS.

With four months to go before the program ends, the Popular Party (PP) government wants to score a political victory by assuring Spaniards that the country no longer needs outside help and can deal with the crisis on its own. It therefore wants no bailout extension.

“The extension is not necessary because, unlike a year and a half ago, the Treasury is borrowing on the markets at attractive rates and the program has worked; doubts over the banking system have largely dissipated,” said Economy Minister Luis de Guindos.

But Spain’s creditors feel it might be better to maintain a safety net to ensure the country does not relapse.

“If come November, Spain produces figures confirming that it can respect fiscal targets, then the government will have good arguments not to extend the bailout and to reject accompanying measures beyond the Two-Pack and the Six-Pack [EU tools for surveillance of national budgetary and economic policy],” said these sources. “If it cannot, then pressure is assured.”

In June 2012, Spain sought a bailout of up to 100 billion euros to clean up its banks, but has only used about 40 billion euros.

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