Spain Is Considering Using Its Debt Instead Of Cash For The Bankia Group

 

Spain is thinking about using its bank-rescue fund or government debt rather than cash to help out the Bankia group, freeing the country from having to request more money from its investors.

 

So far, Spain’s government hasn’t made a final decision in the matter, but will be making the decision within the next two or three months, according to a spokesman for the Economy Ministry, who asked to remain anonymous.

 

Prime Minister, Mariano Rajoy told the Madrid news on May 28 that the government hadn’t talked to the European Central bank about taking this step.

 

He also re-iterated that Spain has no intention of asking the European Union to bail out the country’s banks. Although he said the region’s bank rescue fund should be in a position to bypass domestic governments, while recapitalizing lenders directly.

 

The nationalization of Bankia, which has an asset base of around one-third of Spain’s GDP, would not affect Spain’s budget deficit, according to Rajoy. El Pais, a Spanish newspaper reported Rajoy’s intentions on Sunday.

 

Bankia shares dropped as low as 29% in Madrid and closed 13% lower at 1.36 euros. Spain’s 10-year bond yield grew over 16 basis points (0.15 of a percentage point) to 6.45% at 5:49 Madrid time.

 

Risks to the state and financial industry are starting to become entwined more and more as Spain’s government is running out of borrowing avenues and manage its debt.