Spain minister sees $125B rescue as plenty for banks; lender Bankia gets $5.7B infusion

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File - In this June 26, 2012 file photo, Spain's Economy Minister Luis De Guindos speaks during a meeting in Madrid. Spain’s government Friday Aug. 30, 2012 approved a major new financial sector reform that creates a "bad bank" to contain toxic property investments and gives the central bank more powers to shut down troubled lenders. The royal decree reform is the fifth such package Spain has introduced since the economic crisis began in 2008. De Guindos said the new entity would be controlled by the central bank but would be semi-private. He said it would be operational before the end of November. (AP Photo/Daniel Ochoa de Olza, File)

MADRID - Spain's ailing banks won't likely need to tap all the €100 billion ($125.7 billion) that's been made available by the country's euro partners, Economy Minister Luis de Guindos said Monday.

In a further indication that Spain's economic problems are not as acute as some in the markets have been fearing, De Guindos also insisted that no additional austerity measures will be needed to meet the Spanish government's deficit-reduction target. Spain is battling to avoid the same bailout fate as Greece, Ireland, Portugal and Cyprus.

However, De Guindos said Spain's most troubled bank, Bankia, will get urgent aid, while two indebted Spanish regions appealed for emergency funding to deal with a crippling liquidity crunch.

Spain's banks have an estimated €184 billion in problematic real estate loans and investments following the collapse of the country's property market in 2008. The other 16 eurozone countries have set aside the rescue package to help troubled Spanish lenders.

"In principle, it looks like not all of (the €100 billion) will be used," De Guindos told Onda Cero radio.

De Guindos said austerity policies being enacted by the government will be enough for Spain to meet its target of reducing the budget deficit to 6.3 per cent of national income this year from 9 per cent last. The government has already unveiled a €65 billion package of tax hikes and spending cuts.

"Spain has already set out a path which is sufficient for the problems we face," De Guindos said. He said he didn't expect other eurozone countries to demand more economic reforms in Spain.

Spain agreed late Monday to make an emergency injection of €4.5 billion ($5.7 billion) into Bankia SA, buying new shares in the lender nationalized in May. Bankia has become the poster child for the country's hurting banks, saddled by billions in soured real estate assets.

Bankia has called for a total of €19 billion in public aid. The total amount that will be injected into Bankia should be made public in coming weeks after audits of Spain banks are completed, said a statement from the fund for the orderly restructuring of banks, or FROB, a bank rescue fund set up to help Spain's deeply troubled financial sector.

Spain is in a double-dip recession with a near 25 per cent unemployment rate. Investors fearing Spain may not be able to pay off its debts have charged high prices for loans to the country. That's piled the pressure on Spain to reduce its swollen deficit, cut central and regional government spending and clean up its banking system.

German Chancellor Angela Merkel is due to visit Madrid on Thursday for talks with Prime Minister Mariano Rajoy. Her spokesman, Steffen Seibert, said Monday that Spain must push through its reform plans to improve the long-term prospects of its economy and alleviate market concerns.

"We have said many times in the Spanish case ... that the path Spain has taken recently is remarkable. And that will — as in other countries — when the homework has been done, when the structure of the economy and the labour market has been improved, lead to that being reflected in interest rates," Seibert told reporters in Berlin.

De Guindos predicted that the €100 billion in bank rescue funds would become available by early November, once the banks' restructuring plans are unveiled in the middle of this month.

Spain's heavily indebted regions are another concern for the government. The northeastern region of Catalonia, which announced last week it would seek €5.02 billion in aid from the central government, said Monday it urgently needs money and won't be able to wait until September, as planned, El Pais reported. Also, the regional government of Andalucia is asking for €1 billion in emergency funding, it said.

Though the Spanish government is reluctant to accept conditions that would likely be imposed as part of a wider bailout, Foreign Minister Jose Manuel Garcia Margallo signalled that his country is willing to surrender some degree of sovereignty as part of efforts to draw a line under the eurozone's financial crisis.

He said Spain hoped to make progress toward greater European banking, fiscal and political union during the meeting with Merkel.

"We need to move towards a United States of Europe," he said.

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Geir Moulson in Berlin contributed to this story. Hatton contributed from Lisbon, Portugal.