Regling Says Europe Rescue Fund Offers No ‘Free Lunch’

Assistance from Europe’s bailout funds isn’t a “free lunch” for any country, said Klaus Regling, chief executive officer of Europe’s temporary rescue fund.

“All new instruments are linked to appropriate conditions,” Regling, who heads the Luxembourg-based European Financial Stability Facility, said in a speech in Kokkola, Finland today. “There’s no free lunch for any beneficiary country.”

Europe, using its rescue funds, has the capacity to offer financial help “through precautionary credit lines, before problems hit the markets,” Regling said.

Spain may today move closer to becoming the fourth euro-area nation to receive aid, as the International Monetary Fund said the country’s banks need at least 37 billion euros ($46 billion) to bear a weaker economy. The yield on 10-year Spanish sovereign debt has risen to 6.22 percent, near the levels at which Greece, Ireland and Portugal asked for international assistance after being shut out from market funding.

Euro-area finance ministers will hold a conference call today at 4 p.m. central European time, two European officials said. Regling declined to comment on Spain’s possible aid request.

Resisting Pressure

Spanish Prime Minister Mariano Rajoy is resisting pressure from European officials to accelerate any request for help as Greek elections loom and Spain’s access to markets narrows. He said June 7 he won’t take any decisions about how to shore up lenders until seeing the results of the IMF analysis and similar tests by two international consultants due this month.

Spain’s government and European Commission President Jose Barroso have proposed using the permanent rescue fund, the European Stability Mechanism, to recapitalize Spanish banks directly to avoid burdening the state’s balance sheet with more debt. Germany and Finland oppose the plan, which isn’t possible under the ESM rules currently being ratified by member states.

“It’s important that no aid is given directly to a country’s banks,” Finnish Finance Minister Jutta Urpilainen said in a speech. “Aid should go through the government.”

Urpilainen gave the speech in her home town of Kokkola, at the same seminar where Regling also spoke. The town of 46,000 is on Finland’s west coast, 480 kilometers (300 miles) from the capital Helsinki.

Of the euro area’s 17 members, Finland, Germany, Luxembourg and the Netherlands have top AAA rating on their debt. The other countries in the monetary union are Austria, Belgium, Cyprus, Estonia, France, Greece, Ireland, Italy, Malta, Portugal, Slovakia, Slovenia and Spain.

“Europe’s bank crisis is hampering the movement of money,” Urpilainen said. “The condition of banks must be assessed in a transparent and candid way and the crisis handled with determination and strict terms.”

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