Bankia scandal: Liberal lawmakers muzzled

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MADRID, May 30 (UPI) -- Spain was rebuffed in a scheme to recapitalize troubled lender Bankia SA, while liberal Spanish lawmakers were snubbed for wanting to probe the bank's collapse.

A plan by Madrid to use the European Central Bank to recapitalize Bankia was rejected by the ECB as unacceptable, European officials said.

The government of Prime Minister Mariano Rajoy had said it wanted to recapitalize Bankia by injecting $24 billion in Spanish sovereign bonds into Bankia's parent company and then swapping the money for low-interest ECB cash, avoiding the need to raise the money the expensive way through bond markets.

The ECB told Madrid Spain had to follow the rules for capital injection, two European officials told the Financial Times.

The ECB, which administers the 17 eurozone member states' monetary policy, said Spain's proposal might breach an EU ban on central bank funding of governments, the officials told the newspaper.

The rejection came as Spain's ruling conservative Popular Party used its absolute legislative majority to block a call by two liberal lawmaker coalitions for a parliamentary investigation into how Bankia and parent Banco Financiero y de Ahorro could have suddenly required a $30 billion bailout, Spain's largest ever.

Spanish officials have said they had no warning about the near-collapse that threatens Spain's entire banking system.

Spain seized control of Bankia May 9.

Lawmakers from the United Left and Initiative for Catalonia Greens coalitions also had a demand quashed when they called for an investigation of $28 million in salaries and other compensation BFA-Bankia directors and other top managers received while the bank, Spain's fourth-biggest, posted the largest loss ever suffered by a Spanish lender.

One former Bankia official, Aurelio Izquierdo, received a $17.5 million pension.

The PP, as the Popular Party is called, additionally refused to consider calls for congressional testimony by former Bankia Chairman Rodrigo Rato and top officials of now-defunct savings banks that were grouped together to form Bankia in December 2010, the Spanish newspaper El Pais reported Wednesday.

The ruling party separately insisted any appearance by the Bank of Spain Gov. Miguel Angel Fernandez Ordonez would have to be limited to a closed-door subcommittee meeting, rather than a public hearing, the newspaper said.

PP parliamentary spokesman Alfonso Alonso said Fernandez Ordonez's appearance before an open session of Congress could fan "political confrontation" and be "counterproductive."

That prompted Fernandez Ordonez -- who has come under heavy criticism from the PP for not warning about Bankia's and other banks' problems earlier -- to submit his resignation, effective June 10, a month before his six-year term was to expire.

His departure statement Tuesday said by stepping down early he would be giving his successor a chance to open "a new chapter where important decisions must be taken."