11 Jun 2012

Spain's difficulties focused on banks, says Key

4:17 pm on 11 June 2012

Prime Minister John Key says the financial crisis in Spain is focused on that country's banks and is less serious than the problems in some other European countries.

On Saturday, euro zone finance ministers agreed to lend up to €100 billion to Spain's banks which have been hit by bad property loans.

With the rescue of Greece, Ireland, Portugal and now Spain, the EU and the International Monetary Fund have committed around €500 billion to finance European bailouts.

At the end of his visit to Europe, Mr Key met with German Chancellor Angela Merkel in Berlin.

He told Morning Report they discussed Spain and the wider European economic crisis.

"She left us with no doubt that they recognise that there was a banking crisis in Spain, that overall that the Spanish economy was much more sound than say some of the other economies, that their government was going in the right direction but they effectively had a housing bubble and that was having a dramatic impact on the banks."

Mr Key says he always expected Europe's leaders to help Spain, because not to have done so would have caused massive problems in Europe.

He says Greece's debt problems are significant for that country but are a small part of the overall problem as its economy represents only 2% of the GDP of Europe.

Spain and Italy are bigger, more competitive economies and face different problems. "In the case of Spain, it's very much a banking crisis," he said.