WASHINGTON (Reuters) - Spain can live without a financial bailout but Madrid has to act quickly to recapitalize troubled banks to ensure its problems do not spill over into the rest of Europe, Finnish Prime Minister Jyrki Katainen said on Wednesday.
Katainen, in Washington for talks, told Reuters he shared the view of U.S. officials that the situation in the euro zone was risky and very vulnerable.
“I am personally confident that Spain can live without a bailout package and we now just have to make sure they are capable of dealing with the bank recapitalization,” Katainen said after meeting U.S. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke.
Katainen said Spanish banks should first look to raise capital on the financial markets, then from the government, and if all else fails “then we have to find another way to deal with the recapitalization.”
“It is clear that nobody has a clear and immediate answer on what is the best way to deal with the recapitalization of banks ... but we understand we have to move very quickly,” he added.
European sources said on Wednesday that Germany and European Union officials were urgently exploring ways to rescue Spain’s debt-ridden banks although Madrid had not requested assistance.
A series of reforms to Spain’s financial system have failed to persuade investors that huge losses from a 2008 property market crash have been fully addressed and concerns about the cost of a final rescue have deepened the euro zone debt crisis.
Madrid is the latest member of the euro zone to come under pressure to accept international funding following financial rescues of Greece, Ireland and Portugal in a two-year debt crisis.
Katainen said he was aware how “very, very worried” U.S. officials are about the European situation. His talks in Washington on Wednesday mostly focused on the euro zone crisis, but also on the fiscal challenges faced by the United States and difficulties in a deeply divided Congress.
“The situation is better than I feared and it is more a question about political decision-making,” he said of the U.S. fiscal challenges.
The Obama administration is piling pressure on Europe to step up action and quickly resolve its banking crisis, while laying the foundations for a stronger political union.
Katainen said Spain’s efforts to reduce its deficit and improve economic competitiveness should be recognized but its immediate challenge was to make sure that its banking sector does not cause new problems for the rest of Europe.
Asked whether Finland, which is one of the few triple-A rates economies in Europe, would back proposals for a euro zone banking union with a joint deposit guarantee and bank resolution fund, Katainen said those were longer term issues.
“We have to find an answer to the recapitalization of the banks, but it’s obviously an issue we have to move very quickly on and find a solution very quickly because otherwise the work that the governments are doing doesn’t really help,” he said. “There has to be a difference between current crisis management and longer-term development of fiscal union.”
Reporting by Lesley Wroughton; Editing by Sandra Maler and Cynthia Osterman