MADRID — The European Union urged Spain to come clean Thursday on how it plans to finance the overhaul of its banking sector, warning that uncertainty on this has contributed the recent market turmoil and the country’s soaring borrowing costs.
A European Commission spokesman, Amadeu Altafaj, told Spanish National Radio that the conservative government in Madrid needed to spell out quickly how it plans to finance the recapitalization of troubled lender Bankia SA and whether there are other banks burdened by toxic real-estate assets that might need assistance.
The government nationalized Bankia last month, and the $23.6 billion in public money that will need to be injected is more than twice what the government had estimated.
Doubts over how recession-hit Spain will handle the bailout have sparked concerns that the country will soon follow Greece, Portugal and Ireland in asking for financial assistance. Spain’s borrowing costs on the world debt markets — a sign of investor confidence in how well it can pay off its debt — have hit worrying levels, while its stock prices have slid.
“No one can expect that, with these negative results of some banks, the markets can react with euphoria,” Altafaj said.
Spain’s deputy prime minister was headed to Washington to discuss the economic crisis with U.S. Treasury Secretary Tim Geithner and Christine Lagarde, head of the International Monetary Fund, which has been involved in all previous sovereign bailouts in Europe.
Altafaj said it would be best if the Spanish government turned to capital markets to finance the cleanup of Bankia, the country’s fourth-largest bank, but stressed that if it is going to need external money, it should say so soon.
