AFP

LONDON THE Chancellor of the Exchequer George Osborne called on Thursday for a rapid recapitalisation of Spain’s troubled banking sector using the eurozone’s rescue fund.

Osborne spoke ahead of Prime Minister David Cameron’s trip to Berlin, where the premier will meet German Chancellor Angela Merkel for key talks on the eurozone’s sovereign debt crisis.

“I think you would need to sort out immediately the situation in the Spanish banking system and resolve the uncertainty there, basically put money into the Spanish banking system to recapitalise it without worsening the Spanish sovereign debt situation,” Osborne told BBC Radio 4
“Spain need to restructure their banking system, they need resources to do that. How exactly that is done must be a matter for the Spanish government and the eurozone.” In reference to the eurozone bailout fund, he added: “We need to make sure the mechanisms already put in place can be activated.” Osborne argued that monetary union also required a banking union in the eurozone. However, he stressed this would not involve Britain, which is not a member of the 17-nation single currency area.

“The banks have been one of the weak links in all of this. The eurozone have tolerated weak, under-capitalised banks for too long,” he said.

“Part of running a single currency ... is that you have something more akin to a banking union or a financial union.

“So that, for example, Spanish depositors have confidence that they can leave their money in the Spanish banks, so that, for example, there are common funds to re-capitalise banks, so ... in return for all that there is tougher paneurozone supervision.” The Chancellor added that Britain would need “safeguards” to protect its financial sector, in the event of a eurozone banking union.

“There is no way Britain is going to be part of that banking union.

“Britain will require, if there is a full blown banking union, certain safeguards.” He added: “There will have to be conditions to protect Britain’s most important industry.” Osborne also expressed optimism that a solution would be found over the Spain’s problems — but he warned that resolving them would not end the eurozone’s long-running crisis.

“I am optimistic that people are working hard on a solution and a solution, I think, is coming. They have identified the problem. I know they are working very hard on an imminent solution,” he said.

“I think one of the mistakes we have made over the last couple of years as a world is to assume that if you just get through the latest eurozone problem, the crisis is solved. It is not.

“Just bringing some stability to the Spanish banking system is not going to end the instability in euro.

There need to be more permanent changes to make this currency work.”