By Maria Luisa Gonzalez.
Prime Minister Mariano Rajoy said Monday that Spain's banks will not have to resort to a European rescue operation, on a day on which the investment markets punished the country's sovereign debt after the request by BFA-Bankia for an injection of 19 billion euros ($23.77 billion) of public funds.
With the risk premium standing at more than 500 points "financing is very difficult," Rajoy said in an unexpected press conference after meeting with the leadership of his center-right Popular Party, or PP.
The risk premium - which measures the difference between the return that the German 10-year bond has to pay and its national equivalent - rose on Monday above the feared 500-point barrier and Bankia shares plunged in the stock market, ultimately losing 13.38 percent of their value.
So far this year, Bankia shares have fallen by 62.17 percent in value, a percentage only slightly below the 63.73 percent that they have retreated since their market debut almost a year ago.
Spain's risk premium on Monday recovered to 511 basis points, its highest closing level since the introduction of the euro.
Against this backdrop, with the attention of the markets focused on the Spanish financial institutions, the prime minister attempted to deliver a message of calm and demanded that the European Union "dispel any doubt about the euro," saying that the uncertainty surrounding the single currency of the Eurozone is damaging the Spanish risk premium more than Bankia's situation.
"There's not going to be any rescue of the Spanish banking sector," Rajoy said in response to a question about whether he could fully rule out Spain's resorting to a European rescue of its banks.
BFA-Bankia, Spain's fourth-largest financial group, last Friday said that it needs an additional 19 billion euros ($23.77 billion) from the government to boost loss provisions in addition to the 4.465 billion euros ($5.6 billion) already injected.
Nationalized earlier this month, BFA-Bankia is seeking what would be the largest bank bailout in Spanish history.
The request for funds is more than double the amount Economy Minister Luis de Guindos cited Wednesday in comments to Spanish lawmakers.
BFA, the group's corporate parent, said 6.7 billion euros of the new money will compensate for a decline in the market value of Bankia and other holdings.
With 10 million customers and 400,000 stockholders, Bankia holds Spain's largest mortgage portfolio and Spain's banks have been hard hit by the collapse of the country's 1995-2007 real estate boom.
Europe needs to give "clear, decisive and energetic support" to the euro and to the sustainability of the debt, Rajoy said.
In response to the many questions posed to him about the possible repercussions of the injection of public funds to bail out Bankia, Rajoy said that that will not result in new cutbacks or "have any influence whatsoever" on the objectives for the public deficit.
Spain has committed itself to closing out this year having reduced its deficit to 5.3 percent of GDP after ending 2011 at the 8.9 percent level.
Bankia also disclosed Friday that it sustained a loss of 2.97 billion euros in 2011, not the 309 million euro profit reported in February by the bank's previous management.
The troubled bank likewise announced the departure of 16 directors from the seven savings banks that merged in 2010 to form Bankia. EFE