Spain announces emergency fund

By Victor Mallet and Mark Mulligan in Madrid

Published: October 7 2008 18:57 | Last updated: October 7 2008 18:57

Spain on Tuesday became the latest European nation to take unilateral measures to deal with the world’s deepening financial crisis, announcing a €30-50bn emergency fund to provide liquidity to the financial system by buying Spanish bank assets.

José Luis Rodríguez Zapatero, the prime minister, told a hastily convened news conference that the temporary fund was designed to provide credit for borrowers starved of funds by the seizing up of interbank lending.

He also announced a fivefold increase in the Spanish government guarantee for bank deposits, raising the amount to €100,000 from €20,000 so that “individuals and companies can have full confidence in the security of their savings”.

The fund, whose details will be fleshed out during the regular cabinet meeting on Friday, will be managed by the Spanish treasury to buy the assets of financial institutions.

He stressed that the idea was not to rescue or restore to health the domestic financial system – where institutions were both solvent and solid, even in the current crisis – but to make financing available for companies and individuals so that economic activity and job creation could continue.

The fund, he said, would complement the European Central Bank’s weekly funding auctions, which have been heavily used by Spanish banks, and would buy “healthy assets, not toxic ones”.

Mr Zapatero added: “Credit makes the economy work. Without credit, there is no investment. And without investment there is no economic activity today, nor growth and job creation tomorrow.”

Spanish ministers have called for a concerted European approach to restore confidence in the banks and unblock the interbank market, and have privately criticised the unilateral moves of countries such as Germany and Ireland to provide support to their own banks.

On Tuesday, however, Spain’s Socialist government decided to join the rest and make its own national plan, although Mr Zapatero claimed it was in keeping with European guidelines.

“All European economies are being affected by the fact that the interbank and credit markets are not working properly,” he said. “This makes it difficult for financial institutions to capture resources and restricts the flow of credit to companies and families.

“It is therefore essential that this government helps make credit available to citizens and companies through Spain’s financial institutions.”

Mr Zapatero, who has already met senior commercial bankers and was due to meet trade union leaders on Tuesday night, said he would discuss the matter with the opposition Popular party.