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Spain appeals for help as banks struggle
EU leaders to hold summit on how to preserve eurozone from collapse
MADRID — Spain's prime minister appealed Tuesday for European leaders to push toward greater fiscal unity -- a step that would allow its troubled banks to get direct financial help -- while a top government official warned that the country's high borrowing costs meant it faced increasing trouble accessing credit markets.
Prime Minister Mariano Rajoy told a Senate session that Europe "needs to support those that are in difficulty."
"It needs fiscal integration with a fiscal authority and banking integration, a banking union with eurobonds, a banking supervisor and a European guaranteed-deposit fund."
European leaders are to hold a summit on June 28 on how to stop the 17-country eurozone from collapse. The European Commission and the European Central Bank are expected to present measures at the meeting for creating a "banking union" that would oversee banks and possibly offer bailouts directly, bypassing national governments.
Spain is keen for its banks to be able to seek help directly because if the government were to ask for it from the EU bailout fund, the aid would come with strings attached: Its fellow countries in the eurozone and the International Monetary Fund could impose certain policies on the Spanish government, something the country is keen to avoid.
Spain's most stricken lender, Bankia S.A., needs $23.63 billion in government aid, but Spain only has $6.2 billion left in a fund that it established in 2009 to help banks. The government has promised to help Bankia, but has not mapped out a plan.
The country has become the focus of Europe's debt crisis because bailing out the eurozone's fourth-largest economy would stretch the region's finances to the breaking point.
Mr. Rajoy was speaking as finance ministers and central bank presidents of the world's seven wealthiest countries held an emergency conference call about Europe's economic turmoil.
"Europe needs to say where it is going so as to ensure security," he said. "It needs to say that the euro is an irreversible project and that it's not in jeopardy."
Spain's borrowing costs have soared as investors become increasingly concerned the government's public finances might be overwhelmed by the cost of rescuing banks that are sitting on massive amounts of soured property investments after the bursting of a real estate bubble that once fueled the economy.
The interest rate on the 10-year bond was at 6.31 percent Tuesday, and although down substantially from last week, it was still perilously close to the levels that pushed Greece, Ireland and Portugal to ask for bailouts over the past two years.
Spain is struggling with an unemployment rate of 24.4 percent, with more than 50 percent of people under 25 out of work.
Despite favoring a plan that would allow its banks to seek external help, Spanish Finance Minister Cristobal Montoro reiterated the government's conviction that Spain did not need a bailout.
"The men in black will not be coming to Spain," he said in reference to international inspectors who make periodic inspection tours of countries that receive bailouts.
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