Spain said on Wednesday it was waiting for external auditors to put a final figure on the financial hole in its banking sector before it decides how to fund a rescue.

Economy Minister Luis de Guindos said in Brussels he was not preparing an immediate European rescue of Spain's banks but multiple EU sources said Spain, Germany and European Union policymakers were discussing how to help Madrid on a short timeline, with Berlin warming to the idea of a face-saving European bailout for Spain's banks.

A series of reforms has failed to dispel doubts over Spanish banks' ability to handle losses from a 2008 property crash, helping to push the eurozone's fourth largest economy's borrowing costs to levels that could tip it into an international bailout.

German officials say a deal is in the works that would allow Spain to recapitalize its stricken banks with aid from its European partners but avoid the embarrassment of having to adopt new economic reforms imposed from the outside.

Spain, in its second recession in quick succession, is pushing for a wide political agreement on aid for the banks with minimal strings attached.

The complex technicalities around how to make European rescue money available for banks instead of for a government would be worked out later, said a source close to the situation.

Raising funds on markets for the banks will be tough as the risk premium investors demand to hold Spanish 10-year debt rather than the German benchmark reached its highest level since the launch of the euro, at 548 basis points, last week.

It has eased to 500 bps since then on hopes that action is imminent.

An external audit of Spain's banking system expected before the end of June is likely to reveal additional capital needs of 30 billion to 70 billion euros, economists say. Prior to that, an IMF report into the banking sector is due next week.

The government is sure the results from both reports will tally, de Guindos told reporters in Brussels, where he will meet EU Competition Commission Joaquin Almunia later.

"From there, the Spanish government will take the decisions it has to in terms of recapitalizing the institutions," he said.

However, the source with knowledge of the situation said Spanish officials are concerned that the external audit may come in with a much higher figure than the IMF's, which officials have signaled will be favorable for the government.

Spain is intensifying its drive to get to the bottom of the banks' needs and meet European demands. Sources said the government is working on a new banking reform, the third one this year, to make sure banks have enough capital to deal with losses on mortgages as well as on loans to businesses and consumer credit.

"It is not only the size of the bill but the quality of all the components that we need to know," said a senior EU official.

THREE DIFFERENT ASSESSMENTS

Three different assessments of Spanish banks are due in the coming days and months. Next week's IMF report will include how much capital the financial system needs to weather a severe economic downturn.

The government has also hired consultancies Oliver Wyman and Roland Berger to carry out audits before the end of June which will assess the capital needs for the system as a whole.

Each consultancy will use Bank of Spain data to run a stress test using the methodology of similar tests carried out in Europe last year by the European Banking Authority, said one banking source.

Five different sources said that in a bid to increase confidence in the result, the two auditors will run their data independently, without consulting each other, and could come up with different final numbers.

Another audit, to be completed by August or September, will be conducted by the "Big Four" accountants — KPMG, Deloitte, Ernst & Young and Price Waterhouse Coopers.

This will involve an inspection of each bank, two banking sources and one legal source said, valuing assets and how the lenders are complying with the demands of two banking reforms which demand recognition of heavy losses on real estate assets.

It will also assess banks' risk control processes.

The external auditors are expected to uncover more losses in the financial system under stressed scenarios adding an extra 30-70 billion euros to the 84 billion euros already identified related to real estate losses and potential losses.

CAN THE RULES BE CHANGED?

Spain already meets the conditions to apply for aid that it would use for its banks, under the regulations of the existing European bailout fund, the EFSF.

However, EFSF aid would come with stringent conditions making it politically unsavory for the government which is why Spain is pressing for modifications to the rules of Europe's bigger bailout fund, the ESM, which comes into effect in July, allowing it to give direct aid to banks.

Questions also remain over whether smaller troubled Spanish banks such as state-intervened CatalunyaCaixa and NovaCaixaGalicia could be rescued, because they are not classified as systemic, one of the provisos for accessing European help.

Government sources said they do not believe the audit will reveal system-wide losses as deep as the ones recently revealed at Bankia, Spain's fourth-biggest lender which is being nationalized by the government in a rescue estimated at some 23.5 billion euros.

In fact, government officials now believe the audits will show that Bankia needs less aid than it has asked for.