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By Nigel Davies and Carlos Ruano
June 14, 2010 2:08 PM EDT
Spain said on Monday that foreign banks were refusing to lend to some of its banks in the latest twist to the euro zone debt crisis, but denied it was on the brink of seeking a Greek-style European financial rescue.
Treasury Secretary Carlos Ocana acknowledged officially for the first time a liquidity freeze on some Spanish banks in the interbank market and said the government was working to restore confidence through budget cuts and structural economic reforms.
"It's definitely a problem," Ocana told a conference of business leaders in the northern town of Santander when asked about the reported credit squeeze. But he said Madrid was not negotiating any financial aid package.
"Spain does not need additional financing from any international institution. The rumor is false and I deny it," he said.
The fourth largest economy in the euro area, Spain needs to refinance 16.2 billion euros of bonds in July. It has been able to borrow on the markets but at a rising premium, paying an average 3.317 percent to sell three-year bonds last Thursday.
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Banking sources said last week the liquidity freeze was affecting savings banks and small banks but not the country's biggest financial institutions.
Finance ministers of the Group of Seven nations -- the United States, Japan, Germany, Britain, France, Italy and Canada -- were due to confer by telephone on Monday, a spokesman for euro zone chairman Jean-Claude Juncker said.
He declined to say what the talks concerned.
The German Finance Ministry and the European Commission denied a report in the Frankfurter Allgemeine Zeitung quoting German government sources as saying EU countries would hold talks on aiding Spain in Brussels this week.
Spanish banks have been under pressure since the Bank of Spain stepped in last month to take over CajaSur, a small, 146-year-old lender controlled by the Catholic Church, highlighting the precarious position of other savings banks.
The chairman of Spain's second-largest bank BBVA said the country's top task was to restore market confidence through a mixture of deficit cutting, structural reforms and recapitalizing and slimming down its financial sector.
"We need a solvent and stable financial system, a substantial reduction in the installed capacity in the sector and a sufficient injection of funds," BBVA's Francisco Gonzalez told the same conference, adding that Spanish banking faced a "difficult and uncertain future."
DECISIVE WEEK
The euro and European stocks rallied at the start of a decisive week for reforms in Europe aimed at preventing a repeat of Greece's debt crisis.
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