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Spain Won’t Seek Euro-Area Direct Bank Aid, Dijsselbloem Says

Jan. 24 (Bloomberg) -- The Spanish government sees no need to seek direct bank aid from the euro-area’s permanent rescue fund when that mechanism becomes available, said Jeroen Dijsselbloem, who heads the group of euro finance ministers.

The European Stability Mechanism disbursed 39.5 billion euros ($52.8 billion) to the Spanish government’s bank recapitalization fund last month. A maximum of 100 billion euros has been committed by the euro area.

Last June, euro-area leaders decided the ESM could recapitalize banks directly once the European Central Bank had become the single supervisor for lenders in the currency bloc. One month later, Luxembourg’s Jean-Claude Juncker, then head of the Eurogroup, said Spain’s bank rescue program could be transformed into direct recapitalization when the ESM mechanism was available. After that, officials were less categorical.

“The aid to the Spanish banks could retroactively be brought under the ESM instrument when it’s ready,” Dijsselbloem, also the Dutch finance minister, told lawmakers in The Hague today. “In the meantime, the Spanish government has indicated it no longer sees any need to do so.”

Euro finance ministers this week staked out their turf in a brewing battle over bank rescues amid German and Austrian warnings that direct bailouts won’t be widely available. Ministers seek an agreement in the first half of this year on how and when the 500 billion-euro ESM can bypass governments and provide direct help to banks.

Cypriot Request

Ireland and France led calls for work to proceed quickly. Some creditor nations countered that direct bank aid shouldn’t start until the ECB takes up its new oversight role, which isn’t expected until 2014. In the meantime, the ESM needs to leave its resources free to be a lender of last resort, according to German Finance Minister Wolfgang Schaeuble.

Dijsselbloem’s comments today may give heart to Cyprus, whose president, Demetris Christofias, appealed in a Jan. 11 letter to European Commission President Jose Barroso for direct bank aid to be retroactive for countries that have already received indirect aid. Cyprus is currently negotiating a bailout.

To contact the reporters on this story: Fred Pals in Amsterdam at fpals@bloomberg.net; Corina Ruhe in Amsterdam at cruhe@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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