Many European banks may need bailouts: EU official

Several European banks, including those in Greece, are in bad financial health and may have to be bailed out by their respective countries, the European Union’s (EU’s) Competition Commissioner Joaquin Almunia has said.

Almunia’s interview, published in a German daily, Frankfurter Allgemeine Zeitung, has quashed hopes of an early EU recovery on the back of the 110- million euro financial package offered to Greece last month by 15 euro zone partners and the International Monetary Fund (IMF).

“I presume that Greece will make another application in Brussels for a new state rescue package,” Almunia said, indicating the country was still not out of woods. “In case of Greece, a second rescue package for the country’s banks cannot be ruled out,” the commissioner said.

According to Alumina, several EU banks, which weathered the global financial crisis without state support, might seek the aid now, nearly two years after the collapse of the US investment bank Lehman Brothers. “The number of banks affected by the credit squeeze is still not clear, but they are expected to be mainly Spanish savings banks and Greek banks,” he said.

Almunia, who is a Spanish member of the European Commission, rejected speculation that his country would seek a financial rescue package from the EU because of the current difficulties of several Spanish savings banks to service their debts.

The state support would be necessary for small banks, but they could be helped with funds from the government’s existing safety net for the financial sector, he said.

Spain’s regional savings banks have been the hardest hit by the collapse of the country’s real estate and construction businesses. There are fears that massive bank debts could force Spain to draw from a 750-billion euro rescue fund, set up by the EU and the IMF for the financially-troubled euro zone nations. Almunia said if EU member nations stepped in to rescue individual banks, it could delay the planned phasing out of the union’s support for the financial institutions. The state bailout of banks has declined since it reached its peak level at the end of 2008 and early 2009, and some member nations have decided not to extend the state guarantees given to the banks during the financial crisis.