Spain is expected to ask Europe for help at the weekend with recapitalising its stricken banks,
EU and German sources said today, becoming the fourth country to seek assistance since the euro zone's debt crisis began.

Five officials in Brussels and Berlin said finance ministers of the single currency area would hold a conference call tomorrow morning to discuss a Spanish request for aid, although no figure on the assistance has yet been set.

The Eurogroup will issue a statement after the call, which is scheduled to take place before midday European time, the sources said.

"The announcement is expected for Saturday afternoon," one of the EU officials said.

The dramatic move comes after Fitch Ratings cut Madrid's sovereign credit rating by three notches to BBB from A yesterday, highlighting the Spanish banking sector's exposure to bad property loans and to contagion from Greece's debt crisis.

"The government of Spain has realised the seriousness of their problem," a senior German official said.

He added that an agreement had to be reached before a Greek general election on June 17 which could cause market panic and increase the possibility of Athens leaving the eurozone if parties opposed to the terms of an EU/IMF bailout win.

A spokesman for the European Commission said Spain had made no request for aid and would not confirm that a conference call was planned. But added that if Spain did make a request, the eurozone had instruments ready to provide help.

"If such a request were to be made, the instruments are there, ready to be used, in agreement with the guidelines agreed in the past, in 2011," Amadeu Altafaj told reporters.

"We are not at that point."

In Madrid, where the Spanish cabinet was holding its weekly meeting, a government spokeswoman said she was not aware of any pending announcement on a bank rescue. She recalled that Prime Minister Mariano Rajoy said yesterday he would await the outcome of two external audits later this month before talking with Europe about how to recapitalise troubled lenders.

Spain is expected to request aid from the euro zone's 440 billion euro bailout mechanism, known as the European Financial Stability Facility.

The amount depends on the results of audits being conducted by the International Monetary Fund and independent assessors.

Financial industry sources told Reuters yesterday that a report by the IMF, to be handed to Spain on Friday and expected to be made public on Monday, had estimated Spanish banks' capital needs at a minimum of 40 billion euros.

The eurozone has been under strong pressure from the United States, China, Canada and other major partners to take swift, decisive action to prevent the debt crisis spreading and causing greater damage to the world economy.

Fitch said the cost to the Spanish state of recapitalising banks stricken by the bursting of a real estate bubble, recession and mass unemployment could be between 60-100 billion euros - or 6 to 9 per cent of Spain's gross domestic product. The higher figure would be in a stress scenario equivalent to Ireland's bank crash.

The IMF report is expected to provide a range of figures, with 40 billion euros the minimum requirement, rising to around 90 billion euros for a fuller recapitalisation, officials said.

A separate independent audit of the banking sector, commissioned from consultants Oliver Wyman and Roland Berger, which the government had flagged as crucial, is due on June 21. 

The Independent