German parliament approves Spanish bank aid

Germany's parliament has a European aid package for crisis-wrecked Spanish banks, aiming to prevent Spain's whole economy being dragged deeper into the mire.

In the 10th German vote on European crisis measures since the debt emergency began, lawmakers voted by 473 to 97 to pass the package worth up to $122 billion to pump in much-needed fresh cash to the Spanish banking sector.



A handful of MPs from all parties, hauled back from their summer holidays, voted against the rescue package amid unease in Germany, Europe's top economy, that it is on the hook for ever more bailouts of debt-stricken countries.

While the package received broad cross-party support, the parliamentary head of the opposition SPD party, Frank-Walter Steinmeier, said several MPs in his ranks were "totally unconvinced."

"How many rescue packages are we actually going to need?" asked Steinmeier. "It cannot go on like this." Thirteen deputies abstained in the vote.

The vote was urgent as Madrid hopes to sign the formal agreement with eurozone finance ministers tomorrow.

Opening the debate, Finance Minister Wolfgang Schaeuble said "today is about giving Spain the necessary time to solve its banking problems.

"In this exceptional situation, we are helping the Spanish state to battle against the overblown nervousness of the financial markets and we are therefore making our contribution to the overall financial stability of the eurozone."

Spain is hoping to get a first slice of 30 billion euros by the end of the month and has in turn agreed to a raft of banking sector reforms and EU inspections to ensure the restructuring process is effective.

Demonstrating the urgency of the rescue, a Spanish bond auction earlier on Thursday resulted in sharply higher borrowing costs and lower demand, pushing rates on the secondary market up towards the seven-per cent level seen as unsustainable.

The debate in Germany, which is putting up nearly 30 per cent of the loans, has revolved around who is liable for guarantees.

EU leaders agreed at a summit last month that money from their permanent bailout fund could be used directly to finance banks but only once a comprehensive Europe-wide oversight body, probably under the European Central Bank, was in place.

Berlin has insisted that until then, the Spanish government is responsible for the loans - and for ensuring they are repaid.

With inputs from agencies