Spanish banks in the spotlight

Jens Weidmann, the head of Germany's central bank, has called on Spain to seek a bailout from the eurozone rescue fund, the European Financial Stability Facility (EFSF).

In a in a pre-release of an interview in the weekly Welt am Sonntag, the Bundesbank chief said: "The motto must not be: above all no rescue funds. Hoping for central bank aid to avoid fulfilling one's responsibilities is a bad move."

However, an economy ministry spokeswoman in Spain said Saturday that the country is not seeking aid for its banking sector.

Spain's Deputy Prime Minister Soraya Saenz de Santamaria confirmed on Friday that the government is waiting for the results of an IMF report and two independent audits into Spanish banks' recapitalisation needs before making a decision.

The International Monetary Fund said late on Friday that Spain's weak banks would need at least 40 billion euros (50 billion dollars) in new capital to bolster their defences against severe financial shocks.

A spokesman for Luxembourg Prime Minister Jean-Claude Juncker, the chairman of eurozone finance minister meetings, said Spain had not yet requested help. However, he added "we want to prepare if the call comes."

Juncker himself told German radio on Friday that "The solution must come quickly:"

A Spanish government source told the AFP News Agency on Saturday afternoon: "There is a meeting that was called by Brussels. We are waiting to see the results and we are analysing the IMF report."

Spain hopes to have final figures ready by next Friday June 15. Pressure is on Spain to make an agreement before the Greek elections which takes place next weekend, on Sunday June 17.

On Friday US President Barack Obama called on European leaders to strengthen banks and urged Greece to remain in the eurozone.

Obama told reporters at the White House: "There is a path out of this challenge. These decisions are in the hands of Europe's leaders; they understand the urgent need to act. There are specific steps they can take right now to prevent the situation from getting worse. One of those steps is taking clear action as soon as possible to inject capital into weak banks."

Finance ministers from the 17 eurozone countries are expected to hold a conference call Saturday afternoon to agree a declaration on Spain's intention to request aid and the Eurogroup's commitment to granting it.

Unemployment in Spain is already at 24 percent and a douple-dip recession looks likely to last until well into next year.

jm/sb (AFP, Reuters, dpa)