Spain became the fourth and largest country Saturday to ask Europe to rescue its failing banks, a bailout of up to (euro) 100 billion ($125 billion) that leaders hoped would stabilize a financial crisis that threatens to break apart the 17-country eurozone.
The rescue offer follows growing pressure from international investors and the Obama administration and comes a week before elections in Greece, whose voters could decide whether the country leaves the euro.
Europe's widening recession and financial crisis has hurt companies and investors around the world. Providing a financial lifeline to Spanish banks is likely to relieve anxiety on the Spanish economy -- which is five times larger than Greece's -- and on markets concerned about the country's ability to pay its way.
"What the markets are looking for is essentially the Spanish government's acceptance that its banks are broke," said Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington.
Economy Minister Luis de Guindos announced the deal after an emergency conference call with eurozone financial leaders. He said the aid will go to the banking sector only and would not come with new austerity conditions attached for the economy in general -- conditions that have been an integral part of previous bailouts to Portugal, Ireland and Greece.
The exact figure of the bailout has not yet been decided. De Guindos said the country is waiting until independent audits of the country's banking sector have been carried out before asking for a specific amount.
Finance ministers of the 17 countries that use the euro said the money would be fed directly into a fund Spain set up to recapitalize its banks, but underscored that the Spanish government is ultimately responsible for the loan.
Still, that plan allows Spain to avoid making the onerous commitments that Greece, Ireland and Portugal were forced to when they sought their rescues. Instead, the eurogroup statement said that it expected Spain's banking sector to implement reforms and that Spain would be held to its previous commitments to reform its labor market and manage its deficit.
U.S Treasury Secretary Timothy Geithner welcomed Spain's decision and the offer of European support, describing them as "important for the health of Spain's economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area."
French Finance Minister Pierre Moscovici said the deal would "contribute to restoring confidence in the eurozone."
Spain's financial problems are not due to Greek-style government overspending. The country's banks got caught up in the collapse of a real estate bubble. However, Spain's borrowing costs have soared close to the level that forced the governments of Greece, Portugal and Ireland to seek rescues.