A DEAL is in the works that would allow Spain to recapitalise its stricken banks with aid from its European partners but avoid the embarrassment of having to adopt new economic reforms imposed from the outside, German officials say.
While Berlin remains firm in its rejection of Spain’s calls for Europe’s rescue funds to lend directly to its banks, the officials said that if Madrid put in a formal aid request, funds could flow without it submitting to the kind of strict reform programme agreed for Greece, Portugal and Ireland.
Instead, Spain would only have to agree to new conditions tied to the reform of its banking sector.
Berlin is also exploring the possibility of funneling aid to Spain’s bank rescue fund FROB to reinforce the message that it is the country’s banks and not its public finances which are at the root of its problems.
The evolving German stance on aid for Spain is the latest evidence that Chancellor Angela Merkel is adopting a more flexible approach to solving the euro zone’s deepening debt crisis.