Spain, Cyprus Seek Bailouts for Their Ailing Banks

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Spain and Cyprus — one of the euro currency bloc’s biggest economies and one of its smallest — both sought eurozone bailouts Monday for their financially troubled banks.

The twin bids in Madrid and Nicosia for outside assistance kicked off a week of uncertainty in the 17-nation currency union as the continent’s leaders head to a European Union summit in Brussels on Thursday and Friday.

Spain asked for up to a $125 billion rescue for banks left holding bad real estate loans. But Spanish Foreign Minister Jose Manuel Margallo said details of the bailout would be determined later, including whether the loans would have to be paid by the Spanish government, or the banks alone.

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“About the issue of finance help for bank recapitalization, today it’s just a formal procedure. The important thing is the negotiation of the contract terms, the repayment period, the longer the better, and interest rates, the lower the better. The question about if help should go directly to the banks or to the state is still open.”

The island nation of Cyprus became the fifth eurozone country looking for financial aid from others in the currency bloc, following Greece, Ireland, Portugal and Spain. The Cypriot government said it needs help — without saying how much — to cover risks for its banks.

Nicosia said its banks are vulnerable because of their “large exposure” to the economy in nearby debt-ridden Greece, chiefly their purchase of Greek government bonds that were written down in value earlier this year.

Meanwhile, the Fitch financial services company became third such firm to downgrade the credit standing of Cyprus to “junk” status. Before Cyprus asked for help from other eurozone countries, an EU diplomat said it would first seek more than a $6 billion loan from Russia to help its banks, and then more aid from the currency bloc.

In Athens, Greece’s newly designated finance minister, Vassilis Rapanos, resigned before he was sworn into office. He was hospitalized Friday after complaining of severe abdominal pain.

One financial analyst, Robert Halver of the Baader Bank, said eurozone officials need to act decisively resolve the governmental debt crisis, now in its third year.

“The summit next weekend has to to bring clear results. We have always said that, but now it really is 5 (minutes) to 12. We now need a master plan which steps have to be taken to tackle the problems. We not only need stronger (European) integration but it must be clear, the German position must be to let the ECB (European Central Bank) help with the rescue (of the euro). The bailout fund cannot do this alone.”

But German Chancellor Angela Merkel, who oversees the eurozone’s most robust economy, hardened her stance against issuing common bonds supported by the entire currency union as a way to ease increased borrowing costs for its financially weaker governments.

Ms. Merkel said she is concerned that the summit this week will focus too much “once again” on “all kinds of ideas” for joint liability for eurozone debts rather than improving controls over government spending.

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