The Spanish and European Union flags blow together in the wind in Madrid, Spain.
Credit: Pablo Blazquez Dominguez

More than two weeks after European leaders offered to bailout out Spain’s stricken banking system, Madrid today finally lodged a formal request for aid.

But investors appeared to overlook the news, selling down the euro and shares after Cyprus put its hand up for a bailout – the fifth euro zone economy to request financial aid – and Greece’s new finance minister resigned due to ill health, the Wall Street Journal reported.

Investors are also betting against any major breakthroughs at the European Union summit in Brussels later this week despite leaders of the euro zone's four biggest economies -- France, Germany, Spain and Italy -- last week agreeing to push for a 130 billion euro growth package to spur activity in the region.

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Spanish Economy Minister Luis de Guindos asked the European Union for up to 100 billion euros ($125 billion) without specifying an exact amount or details about the conditions attached to the loan, Reuters reported.

"With this step, Spain has tried to contribute as much as possible to the re-establishment of confidence in the euro zone," Spanish Prime Minister Mariano Rajoy was quoted by the Wall Street Journal as saying.

European leaders agreed earlier this month to lend Spain up to 100 billion euros to shore up its banks that are struggling under the weight of bad loans from the collapse of the country’s property market in 2008.

The findings of two independent audits released last week showed Spain’s banks would need up to 62 billion euros in a worst-case scenario – but Fitch Ratings later criticized the estimate as too low.

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Spain’s borrowing costs have soared to euro-era highs in recent weeks on concerns the international loan will add to the country’s already onerous debt burden, fueling fears it will lose access to credit markets and may need a full-blown bailout, which would be much larger than the rescues of Ireland, Greece and Portugal.

"Whether Spain will also need full-fledged financial support beyond the bank program will depend on its ability to retain market access," Antonio Garcia Pascual, analyst at Barclays Research, was quoted by AFP as saying.

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