Eurozone set for emergency talks on Spanish bank crisis

(BRUSSELS) - Eurozone finance ministers are to hold an emergency conference call Saturday on aid for banks in Spain, tipped as the fourth and biggest country to need help in Europe's two-year debt crisis.

A teleconference of the Eurogroup of finance ministers was planned at 1400 GMT "to agree a declaration on Spain's intention to request aid and the Eurogroup's commitment to granting it," a European government official said.

In a departure from rescue plans already approved for Greece, Ireland and Portugal, Spain was likely to get a deal focused on helping banks that are saddled with bad debt from the country's collapsed property sector.

In Madrid, a government source said officials would study a report by the International Monetary Fund on the banks and wait for the outcome of the ministers' conference call before commenting on any bailout request.

"There is a meeting that was called by Brussels. We are waiting to see the results and we are analysing the IMF report," the source said.

Another European government official who also asked not to be identified said the 17-member eurozone expected a Spanish aid request "any time now."

Jean-Claude Juncker, the Luxembourg premier who heads the Eurogroup, told German radio late Friday: "The solution must come quickly."

German central bank chief Jens Weidmann urged Madrid on Saturday to use the eurozone's temporary financial rescue fund, the EFSF, if needed to bolster the bank's balance sheets.

"If Spain feels overwhelmed by its financial needs, it should use the instruments which have been created for that," Weidmann said in an interview to appear Sunday in the Welt am Sonntag.

If Spain, which faces deteriorated public finances and widespread unemployment, does ask for help it would mean eurozone leaders have failed in their desperate attempts to contain the debt crisis to Greece, Ireland and Portugal.

A Spanish bailout would thrust the eurozone into uncharted waters because Spain's economy is more than twice the size of those three countries combined.

The IMF bank stress tests, which were unveiled three days ahead of schedule, determined that banks in the eurozone's fourth biggest economy need about 40 billion euros ($50 billion) in new capital.

IMF chief Christine Lagarde called Saturday for closer cooperation among the countries that share Europe's single currency.

She argued in an interview for a common eurozone debt guarantee that would send "a clear signal to the markets that Europe has a common plan and its members want to follow it together.

"What is currently undermining efforts to support the euro are uncertainties and doubts about the long-term view of politicians and whether the eurozone will last," Lagarde told the daily Sueddeutsche Zeitung.

German Finance Minister Wolfgang Schaeuble told the regional newspaper Passauer Neue Presse meanwhile that the time has come for tighter European integration.

"It's clear. We have to attain the next step of political integration in Europe. The crisis is forcing the necessary transformations to take place more quickly," he said.

EU leaders are to attend a summit here on June 28-29 aimed at reinforcing European integration.

Meanwhile the IMF tests showed that while Spain's top two banks -- BBVA and Banco Santander -- were solid, the rest of the banking sector was struggling.

If the current stress continues "the largest banks would be sufficiently capitalised to withstand further deterioration, while several banks would need to increase capital buffers by about 40 billion euros," an IMF statement said Friday.

Speaking on background, an IMF official said the banks would likely need a lot more to ensure there was a "credible backstop" in worst-case scenarios.

Fitch Ratings has estimated the amount needed at up to 100 billion euros.

The international ratings agency Moody's warned Friday that an EU rescue of Spain's banking sector could lead to a cut to Spain's sovereign rating owing to the "increased risk to the country's creditors."

And US President Barack Obama urged Europe on Friday to act swiftly to fix its banking woes.

"In the short term they have got to stabilise their financial system. Part of that is taking clear action as soon as possible to inject capital into weak banks," he told reporters.