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Monday, May 7, 2012 11:45 AM UTC

Spain to present new bank clean-up measures

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Topics: From the Wires,

MADRID (AP) — Spain’s prime minister said Monday the government will likely present important bank clean-up measures this week to clear up doubts about the solvency of the sector — a key source of worry over whether Spain might need a financial bailout.

Mariano Rajoy gave no details but said he would not rule out lending, or injecting public money into the sector if necessary.

“The last thing I would do would be to inject or lend public money but if it is necessary I would not hesitate to do it, just as other European countries have done,” Rajoy told Onda Cero radio in an interview.

He said the measures would almost certainly be presented after Friday’s weekly Cabinet meeting.

Rajoy’s comments came after El Pais newspaper said the government was preparing to help out troubled lender Bankia SA.

Spain’s real estate bubble burst in 2008, saddling banks with enormous amounts of bad loans as unemployment rose and people could not pay their mortgages. The Bank of Spain says the sector has about €175 billion ($230 billion) in “problematic” holdings. Bankia is known to be among the worst hit.

The government has forced banks to strengthen their finances by merging and setting aside some €50 billion ($66 billion) more in provisions this year to cover toxic assets.

The Economy Ministry last week said Spanish banks were studying creating a separate entity — a “bad bank” — to take on these assets.

Rajoy has regularly denied Spain needs a “bad bank.”

Spain’s is at the center of Europe’s debt crisis with investors concerned about its ability to push through austerity measures and reforms at a time of recession and with unemployment above 24 percent.

The measures are aimed chiefly at slashing the government’s deficit from 8.5 percent of economic output to below the maximum level set by the European Union of 3 percent by 2013. For this year, the goal is 5.3 percent.

More Ciaran Giles.

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