German bank chief urges Madrid to seek bailout

The head of the German central bank, Jens Weidmann, is pressing Spain to seek a bailout for troubled banks from the eurozone's current rescue fund, the EFSF. "If Spain feels overwhelmed by its financial needs, it should use the instruments which have been created for that," Weidmann said in an interview to appear on Sunday in the weekly Welt am Sonntag. "The motto must not be: Above all no rescue funds. Hoping for central bank aid to avoid fulfilling one's responsibilities is a bad move," the Bundesbank chief was quoted as saying in a pre-release of the interview. Volker Kauder, who heads the German parliament's conservative faction, told the weekly Frankfurter Allgemeine Sonntagszeitung meanwhile: "I am sure that Spain will ask for EFSF help for its banks." The European Financial Stability Facility is a temporary rescue fund created to help indebted eurozone governments, and is to be gradually replaced by the European Stability Mechanism (ESM) starting next month. The EFSF cannot lend directly to troubled banks; governments must request aid that is then passed on to the national financial sector and which entails accepting conditions set by lenders in return. In Madrid, a Spanish finance ministry spokeswoman told AFP that the government had not changed its position and was not seeking aid for its banking sector. "There has been no change," the spokeswoman replied when asked if the government had changed its position in the face of intense pressure to seek tens of billions of euros in new capital so banks can withstand sudden financial shocks. She spoke ahead of a scheduled emergency conference call by eurozone finance ministers to hammer out how best to help Spanish banks. The ministers were "to agree a declaration on Spain's intention to request aid and the Eurogroup's commitment to granting it," a government official of a eurozone country said. Earlier, another official who also asked not to be identified said the 17-member eurozone expected the Spanish aid request "any time now." European Central Bank vice president Vitor Constancio called Friday for quick action to recapitalise Spanish banks amid persistent tension on stock and bond markets. "Spanish banks have recapitalisation needs, therefore a solution must be found quickly to calm the markets," Constancio said on the sidelines of a Portuguese parliamentary committee hearing. If Madrid does ask for help, it would mean the eurozone leaders have failed to contain the sovereign debt crisis to Greece, Ireland and Portugal. A Spanish bailout would also thrust the eurozone into uncharted waters, since Spain's economy is more than twice the size of those three countries combined.