A preliminary report carried out by the International monetary fund has revealed that Spain will need a cash injection of at least €40 billion Euros if the embattled country is to survive the devastating debt crisis that has hit the country.
The staggering amount is certain to anger many EU leaders and taxpayers as concerns over where the vast sum will be generated from. The report goes on to say that if Spain is to totally clean up its struggling banking system it will need at least €90 billion.
“The capital shortfall for the Spanish banks will be around 40 billion Euros after taking into account the capacity from some of the entities to cover expected losses with their own resources,” said an IMF source.
The IMF report is being done alongside an audit of the Spanish sector and their findings will determine whether the country will receive a bailout similar to those implemented in Greece, Ireland and Portugal. The audit is being carried out by consulting firms Roland Berger and Oliver Wyman. Any bailout of Spanish lenders is hoped to boost confidence in Spain’s battered banking system.
Spain’s finance minister Luis de Guindos said that the government will wait for the audit to be published before it makes any decisions on whether to request a bailout, something that the Madrid government is loathe to do due the political damage it will face.
An EU official said the final bill was still a moving target that the cost could increase even more.
“You’ve got bad property loans that still haven’t flowed through the system, and you have a recession. All the banks’ balance sheets are going to be under increased pressure in the months ahead as a result,” the EU official said.
“When it comes to Spain, there would appear to be two ways to go: a minimalist approach in which only the bare minimum of banks are recapitalised, and a maximalist approach where you try to get ahead of the bad loans in the pipeline and recapitalise all the banks that need it,” the official added.
With unemployment breaching the 25% mark and youth unemployment hitting a staggering 50% something has to be done to sort out the Country’s economy.
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