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Banks in Spain forced to recapitalize

May 12, 2012 at 12:09 PM

MADRID, May 12 (UPI) -- The Spanish government, with the economy slipping into recession, said its banks need to raise $39 billion to protect Spain's financial system.

In response to the announcement, the stock market in Madrid dropped 3 percent. The government had already announced earlier in the week it would take control of 45 percent of Bankia.

The British Broadcasting Corp. reported Saturday the European Commission said raising that much capital "would make it harder for individuals and businesses to borrow money, which would constrain the economy."

The commission recently projected Spain's economy would shrink by 1.8 percent in 2012 and by 0.3 percent in 2013.

Spain, which has the highest unemployment rate in Europe, was hit hard by the financial downturn, as it had just undergone a building boom when the downturn struck.

At this point, the Bank of Spain estimates 60 percent of the property assets held by Spanish banks – assets worth $237 billion – are in distress, representing either seized property or loans going under, the BBC said.

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