As European leaders prepare for talks later this week regarding the euro zone's financial crisis, Spain officially petitioned Monday for up to €100 billion ($125 billion) in loans to rescue its banking sector.
In his letter to Luxembourg Prime Minister Jean-Claude Juncker, who heads the Eurogroup of euro zone finance ministers, Spanish Economy Minister Luis de Guindos said the funds would be sufficient to cover the banks' capital requirements as well as a margin of security.
Full details of the loan package will be revealed before the July 9 meeting of the finance ministers in Brussels, where, among other issues, the terms of the loan -- including the interest rate -- will be hammered out. The final sum required to rescue Spanish banks from the burst of the country's real estate bubble will not be revealed until September, after further audits this summer, according to The New York Times.
Last week, two audits commissioned by the Spanish government said the country's banking sector needs up to €62 billion to avoid collapse, should economic conditions worsen in the country, which is facing deep recession, high unemployment and near-record-high borrowing costs.
To avoid adding this money to an already enormous debt burden, the Spanish government would prefer the money to be given directly to the banks, but that would require changing EU rules.
On Thursday and Friday, EU leaders are scheduled to meet in Brussels to discuss one of the fundamental problems facing the 17-state currency bloc: a lack of adequate economic integration that could be resolved with a unified banking system.
Later this week, a blueprint for greater centralization of euro zone banking systems will be presented by Juncker, European Commission President José Manuel Barroso, European Council President Herman Van Rompuy and the head of the European Central Bank, Mario Draghi.
For its part, Germany would like to see Brussels have more authority in how euro zone member states spend their money. Even if an agreement is made, the implementation of a plan will take months to start.
Spain and Italy have been facing unsustainably high borrowing costs. Italy's bond yields have risen in recent weeks on speculation it will be the next European state to request aid.
On Monday, the benchmark Spanish 10-year bond was up 15 basis points, yielding 6.53 percent, while the Italian counterpart rose 9.7 basis points, to 5.896 percent.
The euro was trading down slightly at 1.248 to the dollar. The Euro Stoxx 50 -- which measures top European blue chip stocks -- was down 1.75 percent. The index has lost 7.25 percent since the start of the year, and more than 20 percent of its value in the past 52 weeks. Madrid's IBEX was also down, more than 2 percent.