June 10, 2012 | last updated June 10, 2012 12:36 pm

Spain PM: 'Credibility of euro' is saved

A credit line of up to €100 billion ($125 billion) for Spain's troubled banks has rescued the credibility of the euro, the country's prime minister Mariano Rajoy said Sunday.

Popular Party leader Rajoy, who swept to power last November amid a backlash against the Socialist Party, said if the aid had been sought earlier "we wouldn't be in this position." His government was making the right decisions, he added.

On Saturday eurozone finance ministers said they would "respond favorably" to a request for aid and that Spain should take a loan that "must cover estimated capital requirements with an additional safety margin, estimated as summing up to €100 billion."

The agreement to offer aid came amid growing fears around the stability of Spain's banking system. Rajoy said it showed the advantages of cooperation within the bloc and meant "European credibility won, the future of the euro won [and] Europe won."

He warned, however, that the situation in Spain -- where more than half of those under 24 remain out of work, and almost one in four overall -- remained "very delicate."

The aid comes at a crucial time for the eurozone, coming a week before elections in Greece which could trigger the country's exit from the common currency and has the potential to rewrite the future of the bloc.

Spain's request for assistance came after it became increasingly expensive for the government to raise money itself to bail out the country's ailing financial institutions.

Spain is the eurozone's fourth-biggest economy -- almost twice as large as Greece, Ireland and Portugal combined -- but its banking sector had been left with an estimated €300 billion of problem loans after country's real estate market collapsed in 2008.

Successive Spanish governments have taken action to consolidate the sector, creating the fourth-largest, Bankia, out of a number of failing financial institutions. But late last month, Bankia sought €19 billion in capital to shore up its balance sheet.

In response, Spain's borrowing costs pushed towards 7% -- a level considered unsustainable and which pushed Greece, Ireland and Portugal into bailouts.

But Rajoy has repeatedly called the aid a credit line rather than a bailout as he seeks to differentiate Spain's situation from its smaller euro peers.

The move follows Friday's report from the International Monetary Fund, which had been conducting stress tests on the country's banks and said at least €40 billion was needed to preserve Spain's stability.

The IMF recommended more capital be set aside for the most vulnerable banks. Spain's credit rating was also cut three notches by ratings agency Fitch Thursday.

The total amount will depend on the outcome of two independent audits of Spanish banks that are expected to be done later this month. The Eurogroup said in its statement that its aid would be scaled according to the results of the audit.

Spain's economy minister, Luis de Guindos, Saturday said the loan would be provided on "very favorable terms." He said the conditions will only apply to banks and not the government. He stressed that Spain has asked for help with its banks, and that it has not requested a full-blown bailout.

The European Financial Stability Facility could provide some of the capital, said de Guindos. But he added that the bailout fund has not been authorized by all euro area parliaments to grant such a request.

The EFSF has already backed loans for Greece, Ireland and Portugal. It has about €200 billion in available funds, according to some estimates.

The goal is to help the Spanish economy recover by recapitalizing insolvent banks so that those institutions can begin lending to companies and families, said de Guindos.

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