Spain says China to help ailing savings banks

AP News
|
Posted: Apr 13, 2011 12:26 PM
Spain says China to help ailing savings banks

China is studying a plan to inject euro9.3 billion ($13.5 billion) to help restructure Spain's savings bank sector, a Spanish government official said Wednesday.

The official said Xie Ping, deputy President of the state-run China Investment Corporation discussed the plan during a meeting with Spanish Prime Minister Jose Luis Rodriguez Zapatero and Chinese investors in Beijing.

The plan envisages the corporation contributing euro6 billion and Chinese investors providing the rest. There were no details as to what China might get in return for the deal.

Restructuring Spain's troubled savings banks is crucial to Spain's efforts to emerge from nearly two years of recession.

The Bank of Spain estimates the sector needs euro15 billion in recapitalization funds. Some analysts predict they will need up to eight times this amount.

The savings banks, or cajas, were heavily exposed to Spain's collapsed real estate sector and are saddled with billions of euros in foreclosed property.

The official was speaking on condition of anonymity in keeping with government policy.

Earlier Wednesday, Zapatero said Spain expected to meet its deficit-reduction targets this year without imposing new austerity measures as market confidence in the country's public finances has recovered.

Zapatero said Portugal's request for a bailout last week would be the last in Europe's sovereign debt crisis.

He spoke after meeting the Chinese investors at the conclusion of a two-day visit. Excerpts of his remarks were carried on Spanish National Television.

Spain has cut civil servant wages and other spending and frozen pensions as part of an austerity plan designed to slash its bloated deficit and ward off the possibility of contagion from the eurozone debt crisis.

Its deficit target for this year is 6.0 percent of GDP, down from about 9 percent in 2010.

The International Monetary Fund says the 2011 figure is about right, but it expects Spain's deficit-reduction drive to slow down as the country fights to recover from recession and deals with a 20 percent jobless rate. The IMF forecast Monday the deficit will be 5.6 percent of economic output in 2012, way above the 4.4 percent foreseen by the government.

Still, Zapatero was adamant that Spain has imposed all the belt-tightening it needs: "There is no forecast on the horizon that we will have to take more austerity measures. None."

He said the Cabinet will approve an important reform measure on Friday but gave no details. Spanish media quoted government officials as saying it would involve fighting tax evasion by rooting out Spain's large underground economy. Some estimates say it accounts for as much as 20 percent of the country's output.