Spain’s Bad Bank Needs Goodwill From Europe’s Leaders

Spain is trying hard to shore up its banking system, an endeavor crucial to the recovery of the euro area’s fourth-largest economy. To improve the chances for success, Europe’s leaders need to send a clear signal that the costs to Spain’s government won’t get out of control.

On Dec. 1, Spain plans to put in place a central element of its financial-sector rescue agreement with the European Union: a “bad bank” designed to unburden the country’s commercial lenders of some of their worst assets. The bank will spend as much as 90 billion euros ($115 billion) to buy foreclosed properties and soured real-estate loans, at prices ranging from about 20 percent to 68 percent of face value. To mitigate the cost to the government, it hopes to raise several billion dollars in capital from private investors.