November 8, 2012 / 2:25 PM / in 5 years

UPDATE 1-Bailout loans will be paid back, risks exist -ESM chief

HAMBURG, Germany, Nov 8 (Reuters) - Loans given to struggling euro zone states will be paid back but the possibility of default still has to be factored in, the head of the euro zone’s bailout fund told Reuters on Thursday.

“Loans will be serviced and paid back. Risks are of course taken on and you cannot completely exclude the possibility that such risks will become real,” Klaus Regling, head of the European Stability Mechanism (ESM), said on the sidelines of an economic conference in Hamburg.

“But it is not the usual case - it’s a big exception, if it ever were to even arise. That has not happened so far,” he said.

Speaking to an economic conference in Hamburg, Regling also suggested debt-crippled Spain may not need a full state bailout.

“If Spain gets money for its bank restructuring, does its homework, labour market reforms and budget consolidation and the result of these efforts is that interest rates on the markets are lower again because the markets have more confidence, why should Spain be forced to take a bailout?”

“It is certainly good that the option is there in case the markets change their minds,” he added.

Spanish Prime Minister Mariano Rajoy has held out against calling for a rescue package on top of a bank bailout that includes a 100 billion euros European Union credit line. Investors had expected Spain to make a rescue request before the end of the year but some now think it could be postponed.

Earlier on Thursday, Spain sold 4.8 billion euros of bonds, more than the targeted amount, including some longer-term debt.

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