Bankia Could Drag Spain to Bailout

Spain’s third-largest bank has asked government for $24 bln in aid.

Bankia group risks dragging the rest of Spain into its vortex.

As Spain’s third-biggest bank asks Prime Minister Mariano Rajoy’s government for 19 billion euros ($24 billion), international investors are tallying the potential cost for the rest of the industry and betting he won’t be able to foot the bill. With foreign investors shunning Spanish debt, leaving national banks to fund the government, the nation’s 10-year borrowing costs compared with Germany’s are near a record.

External Audit

It’s not clear whether Spain would be able to seek a bailout just for its banks. While the European Commission yesterday backed Spain’s view that euro’s permanent rescue fund should be able to sidestep governments and recapitalize banks directly, Germany continues to oppose the idea.

International Investors Flee

Goirigolzarri’s numbers also undermined the government’s credibility as his 19 billion-euro bailout request came two weeks after de Guindos had said 15 billion euros would be enough for the whole industry to meet his latest decree on bank rules.

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