Spain to seek bailout; up to $125 billion on table

Paul Hanna / Reuters

Spain's economic crisis includes protests like this one in Madrid on Friday, where people rallied against layoffs at Banesto bank.

By msnbc.com news services

Spain will seek financial help from its Eurozone partners but exactly how much won't be known until private audits are undertaken, the country's economy minister announced Saturday.

Earlier, finance ministers from across Europe discussed plans to offer Spain up to $125 billion in a bid to stabilize its banks -- and ease concerns over the even bigger European debt crisis, sources told Reuters.

That amount was described as an upper limit, not an indication of what Spain would ask for.

Investors and politicians have been increasingly concerned that Spain might not be able to find the money to prop its ailing banks by itself.?

A report from the International Monetary Fund estimated Spanish banks need a recapitalization injection of at least $50 billion following a stress test it performed on the country's financial sector. That report came out early Saturday, three days ahead of schedule, underscoring the urgency of the situation.?

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Spain has said it wants to wait for two independent audits ? due by June 21 ? before requesting a bailout.

Euro zone policymakers were eager to shore up Spain's position before June 17 elections that ?could push Greece closer to a Eurozone exit and unleash a wave of contagion.

"If the government decides to seek a rescue, whatever the formula being used, we need to say two things: first the innocent should not suffer for the guilty, second public money should come back to public coffers," said Socialist opposition chief Alfredo Perez Rubalcaba after speaking with Prime Minister Mariano Rajoy on Saturday morning.?

The government has already spent billions bailing out small regional savings banks that lent recklessly to property developers.?

Spain's biggest failed bank, Bankia, will cost $25 billion to rescue and its shareholders have been wiped out.

The race to resolve the banks' troubles comes after Fitch Ratings cut Spain's sovereign credit rating by three notches to BBB, highlighting the Spanish banking sector's exposure to bad property loans and to contagion from Greece's debt crisis.?

It said the cost to the Spanish state of recapitalizing banks stricken by the bursting of a real estate bubble, recession and mass unemployment could be between $75-$125 billion. The higher figure would be in a stress scenario equivalent to Ireland's bank crash.

Italy could yet get dragged in too. Its industry minister, Corrado Passera, said the economic situation in Italy had improved since the end of 2011, but remained critical.?

"Europe was more disappointing than we had expected, it was less capable of tackling a relatively minor problem such as Greece," Passera told a conference.?

While Spain would join Greece, Ireland and Portugal in receiving a European financial rescue, officials said the aid would be focused only on its banking sector, without taking the Spanish state out of credit markets.?

That would be crucial to avoid overstraining the Eurozone's rescue funds, which would struggle to cover Spanish government borrowing needs for the next three years plus possible additional assistance for Portugal and Ireland.?

Conditions in the plan would be related to the banks and would probably not add to the austerity measures and structural economic reforms which Spain's government has already put in place, EU and German sources said.?

A "bailout lite" would help salvage Spanish pride. Spain is the world's 12th largest economy and No. 4 in the Eurozone. EU and German officials have cited national pride as a barrier to requesting a full assistance program.?

The Associated Press and Reuters contributed to this report.

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