Spain may pump public funds into its banking system to revive lending and its recessionary economy, Prime Minister Mariano Rajoy said Monday (via Dow Jones Newswire), signalling a policy U-turn. The government had pledged to not give money to the banking industry that is struggling in the wake of a collapsed, decade-long, housing boom. “If it was necessary to reactivate credit, to save the Spanish financial system, I wouldn’t rule out injecting public funds, like all European countries have done,” Rajoy said in interview with Onda Cero radio stations. The weakness of Spain’s banks is weighing on the economy that contracted 0.3% in the first and fourth quarters, meeting most economists’ definition of a recession. The unemployment rate is at an 18-year high 24.4%, data showed April 27. Banks have sharply reined in credit in the face of rapidly growing bad debt and problems getting finance on international markets.”

More explicitly, El Confidencial reports that Economy Ministry officials said that Spain will inject EU$7 billion of public funds via contingent-capital securities to support BFA-Bankia.

Beware of Spanish crisis contagion

 

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