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German lawmakers back Spanish bank aid

20 July 2012 00:51 (UTC +04:00)

Baku-APA. German lawmakers approved Thursday a rescue package of up to 100 billion euros (122 billion U.S. dollars) for Spanish struggling banks, hours after new alarm was ringing as Spain’s 10-year bond yields once again climbed above 7.0 percent seen as unsustainable, APA reports quoting Xinhua.

The vote, which was held in a special one-day session of the Bundestag, or the lower house of parliament, during its summer break, witnessed some 473 lawmakers of the 583 MPs present endorsed the lifeline for Spanish banks, while 97 MPs objected and 13 abstained.

In the parliamentary debate, Wolfgang Schaeuble, German Finance Minister, said that markets have doubted whether Spain could solve the problems of its banking sector, which could lead to "serious contagion risks in the euro area."

"We have an exceptional situation, so we help Spain and thus contribute to stability in Europe as a whole," the minister said, adding that the economic situation in Europe was still characterized by uncertainty, and regaining lost trust would take a long time.

He noted that Spain as a whole has been "on a right track", as the country took a series of measures after the debt crisis, such as raising tax, setting debt brake and activating the labor market, "but such reforms can only succeed if the Spanish banking problems are solved."

Schaeuble said the rescue package could enable Spanish government to buy more time to promote the reforms, and to calm nervous markets and investors.

Schaeuble also tried to clear all worries about the liability of the financial aid, as some lawmakers are afraid that the Spanish government would not have to be responsible for the rescue package, if the loans were transferred from the current, but temporary bailout fund European Financial Stability Facility (EFSF) to the permanent European Stability Mechanism (ESM) once it became operational.

The latter could be used directly to rescue banks once a Europe-wide banking supervision body was established, under an agreement of European summit in June.

Since it is the Spain government that made the request of help and get the loans, "the Spanish state will be liable in the end," Schaeuble said.

The minister also assured lawmakers that for every Spanish bank that applied for help, there would be an individual stress test. The salaries of bank executives would be capped if the bank accepted the loan.

With the approval of the parliament, Schaeuble will comfortably confirm Germany’s contribution of some 30 billion euros to the Spanish bank aid on Friday’s euro zone finance minister conference, paving the way for Spain’s signing a final agreement on bailout with the EU.

However, fears that Spain will seek more help may be hard to ease, as the country’s 10-year sovereign bond yields returned to the unsustainable level of 7.0 percent on Thursday. Meanwhile, a series of bond auctions in Spain faced cold responses from international investors.

Late last month, Madrid applied for rescue loans that can be used to recapitalize its ailing banks, which were hardly hit by the burst of the real-estate bubble.

As Spain agrees to take far-reaching banking reforms and accept tough supervision from Brussels, the country is hoping to receive a first tranche of 30 billion euros by the end of July.