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TheStreet Open House

Spain: Decision On Bailout Within Weeks

A 'bad bank' being set up to allow lenders to offload toxic real estate investments will hold up to ⿬90 billion of assets, the Economy Ministry said Wednesday. The government aims to set up the bank, to be known by its Spanish acronym SAREB, on Nov. 19, the ministry said.

Establishing a bad bank is a requirement for Spain to gain access to a ⿬100 billion loan by the eurozone group of nations to help those of its financial entities worst hit by the collapse of the country's bloated real estate sector with the onset of the crisis in 2008.

Rising speculation that Madrid will ask for help soon eased pressure in the bond markets Wednesday.

The interest rate on the country's benchmark 10-year bond was down 0.22 percentage points to 5.55 percent in midday trading. It has hovered close to 6 percent in recent weeks amid uncertainty over whether Spain would apply for aid or not.

The market improvement was also partly due to relief that Moody's rating agency did not cut its credit grade on the country to junk status, as had been widely feared in recent weeks. Instead, Moody's said after the European market close on Tuesday that it was keeping its Baa3 rating on Spain, the lowest investment grade.

Spain is at the core of Europe's financial crisis because, as the fourth largest economy in the 17-country eurozone, it would be hugely expensive to rescue should it lose access to bond markets.

The economy is also in terrible shape â¿¿ it is in its second recession in three years, unemployment is near 25 percent and forecasts for the coming year are grim.

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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