Spain has started working with European Union officials on a potential bailout, according to a report in the Financial Times today, but if it goes ahead it will be a different beast to the three post-crisis bailouts already announced.
Spainâ€™s sheer size means that its combined gross domestic product is bigger than all the previously bailed-out nations: Ireland, Portugal, and Greece.
The source of its pain is also different to the sovereign debt problems of Greece. Spainâ€™s ratio of debt to gross domestic product is lower than Germany’s, and it has been narrowing its current account deficit.
The results of Spainâ€™s financial sector review by auditor Oliver Wyman will be announced next Friday. The government is also preparing a new budget for 2013, to be announced next week, which the EU is believed to be helping shape ahead of a bailout announcement. Speculation about what both will contain has already increased.
Francisco Gonzalez, chairman of BBVA, predicted on Thursday that Spanish banks will need 70 billion to 80 billion euros ($91 billion to $104 billion) to plug a capital shortfall, much higher than the 51 billion to 62 billion euros ($66 billion to $80 billion) estimate that Oliver Wyman made in June and IMF forecasts of around 40 billion euros ($52 billion).
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