Move is 'crucial step' for Spain's strategy

US AND IMF REACTION:THE US treasury and the International Monetary Fund have welcomed the euro group's commitment to bail out Spanish banks.

Treasury secretary Timothy Geithner called Spain’s action to recapitalise its banking sector and the European promise on Saturday “concrete steps on the path to financial union, which is vital to the resilience of the euro area”.

Christine Lagarde, the managing director of the IMF, noted that “providing a credible back-stop to recapitalise weaker segments of the banking system has been a key recommendation” of the IMF’s June 8th assessment of the Spanish economy.

Ms Lagarde called the willingness of euro zone members to support the Fund for Orderly Bank Restructuring “a crucial step for the success of the Spanish authorities’ strategy”.

She said the €100 billion was “consistent with the capital needs identified” in the IMF report, and “gives assurance that the financing needs of Spain’s banking system will be fully met.”

In its report, the IMF said Spanish banks would need at least €37 billion to withstand the weakening economy. The IMF also said that the “gradual approach” by banks had undermined financial stability. Spain has made at least four attempts in four years to overhaul its banking system.

Ms Lagarde said the IMF “stands ready, at the invitation of the Eurogroup members, to support the implementation and monitoring of this financial assistance”.

The Spanish bailout was widely viewed in the US as an attempt to brace Spain for the possible aftershocks of the June 17th election in Greece.

The White House refused to comment on the Spanish bailout, but Saturday’s announcement followed by one day an urgent appeal by President Barack Obama for rapid European action, including recapitalisation of banks.

Because Europe is the US’s leading trading partner, the crisis in Europe was holding back recovery in the US, Mr Obama said. European leaders “understand the seriousness of the situation and the urgent need to act”, he said.

Although they cannot vote, Europeans, through their handling of the euro crisis, “may well cast the deciding ballot” in the November presidential election, Dana Milbank wrote in yesterday’s Washington Post. “For President Obama, it’s looking grim.”