Eurozone wants financial sector reform for Spanish rescue

(BRUSSELS) - Eurozone finance ministers will demand that Spain carry out reforms in its financial sector in exchange for a bailout of troubled banks, a senior EU official told AFP on Saturday.

Asked whether the 17-nation eurozone would set conditions on a rescue, the official replied: "Conditions to the Spanish government but these will only entail a clean-up of the financial sector."

The source spoke after the start of a teleconference of Eurogroup finance ministers that focused on Spain, the fourth biggest eurozone economy.

The source, who asked not to be identified, also said the Eurogroup was mulling "up to 100 billion euros" ($125 billion) in aid for distressed Spanish banks, a senior EU official told AFP.

"The amount on the table at the moment is as much as up to 100 billion euros but this hasn't been decided yet," said the source.

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

Madrid has been reticent to ask for a bailout despite intense pressure from eurozone nations, keen to take action quickly to avoid further contagion across the euro area.

There has been no official request from Spain for a rescue.

According to International Monetary Fund stress tests unveiled on Friday, three days ahead of schedule, Spanish banks need about 40 billion euros ($50 billion) in new capital.

But 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.