Spain Bank Rescue Glee Morphs Into Markets Rout

The rescue for Spain's banks was portrayed by Spanish and European officials as a bid to contain Europe's widening recession and financial crisis that have hurt companies and investors around the world. Providing a financial lifeline to Spanish banks was designed to relieve anxiety on the economy.

Finance ministers of the 17 nations that use the euro said Saturday they would make the loan of up to ⿬100 billion available to the Spanish government to prop up banks laden with non-performing loans and other toxic assets after the collapse of a real estate bubble.

Recession-hit Spain, which has the eurozone's fourth-largest economy, has yet to say how much of this money it will tap while it waits for the results of two independent audits of the country's banking industry, not due until June 21 ⿿ after the Greek elections. The bailout loans will be paid into the Spanish government's Fund for Orderly Bank Restructuring (FROB), which would then use the money to strengthen the country's teetering banks.

In a report released late last week, the International Monetary Fund estimated Spain needs around ⿬40 billion to prop up banks hurting from an unprecedented real estate boom that went bust.

Worried investors still don't know precisely how much Spain will seek, and how large a safety margin of extra money it might take to cushion itself against further shocks, such as a deterioration in the economy already in its second recession in three years with unemployment of nearly 25 percent, the highest in the eurozone.

"Markets will certainly ask the question about whether a second bailout might be required and the margin for error between the sort of euro40 billion the IMF is saying and the ⿬100 billion ceiling in terms of what we heard," said Mark Miller of Capital Economics in London.

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