Eurogroup Proposes $125 Billion Bailout of Spain

(CN) - European finance ministers asked the EU Commission to approve a $125 billion bailout of Spain's banking system amid growing financial woes.

Eurogroup said in a June 9 statement that it supports the efforts of Spanish authorities to address the restructuring of its financial sector, and "welcomes their intention to seek financial assistance from euro area member states to this effect."

The group said it is willing to respond favorably to such a request by Spain's government, which is beleaguered both by Europe's growing financial crisis and the Spanish people's often violent responses to austerity measures.

Bailout funds would come from the European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM), for the purpose of bank recapitalization only, the ministers said.

"The loan will be scaled to provide an effective backstop covering for all possible capital requirements estimated by the diagnostic exercise which the Spanish authorities have commissioned to the external evaluators and international auditors," Eurogroup said. It also "must cover estimated capital requirements with an additional safety margin."

Any request for aid from Spain would be contingent on an assessment by the European Commission, which is tasked with approving and setting accompanying conditions for the receipt of state aid, the ministers said. That agency would work in conjunction with the European Central Bank, the European Banking Authority and the IMF.

Noting that Spain has already implemented "significant fiscal and labor market reforms and measures" to strengthen its economy, Eurogroup expressed confidence that the country could recover from its current financial woes - and make good on future debts.

"The Eurogroup is confident that Spain will honor its commitments under the excessive deficit procedure and with regard to structural reforms, with a view of correcting macroeconomic imbalances in the framework of the European semester," according to the statement.

"Progress in these areas will be closely and regularly reviewed also in parallel with the financial assistance," the ministers added.

For its part, the European Commission said it wants to work quickly on stabilizing Spain's crumbling financial institutions.

"The commission is ready to proceed swiftly with the necessary assessment on the ground, in close liaison with the ECB, EBA and IMF, and to propose appropriate conditionality for the financial sector," the commission said in a statement.

"With this thorough restructuring of the banking sector, together with the on-going determined implementation of structural reforms and fiscal consolidation, we are certain that Spain can gradually regain the confidence of investors and market participants and create the conditions for a return to sustainable growth and job creation," it concluded.

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