Spain denies its banks need European aid Spain has denied that its banks need European rescue money as it warned that the eurozone's fourth-largest economy is likely to shrink for the third consecutive quarter. Spain's economy is on track to shrink 0.3 per cent in the second quarter, Luis de Guindos, finance minister, said in a conference in Madrid on Monday. That contraction would compound the country's second recession in three years as it battles to meet Brussels-imposed deficit-reduction targets. The minister denied Spanish banks could need an injection of fresh capital from European rescue funds following the suggestion over the weekend from François Hollande, the French president. Mr Hollande on Friday became the first European leader to openly suggest that Spain's banks - which Mr Guindos this month ordered to raise an extra €30bn in provisions - required aid that could be too great for Spain to provide alone. Madrid, which on Monday officially appointed Oliver Wyman and Roland Berger to conduct independent stress tests and valuations of Spanish banks" property assets, is expected to announce this week the extra state aid required by Bankia, the lender it part nationalised this month. Madrid's warning over a likely contraction in the second quarter follows a surprise announcement late on Friday that Spain's budget deficit was 0.4 percentage points higher than previously thought due to four regional governments adjusting their accounts for last year. Mr de Guindos said that both the central government and regions remained committed to achieving a budget deficit of 5.3 per cent of economic output this year, down from 8.9 per cent last year, according the figures released on Friday. This was the second time since the conservative government of Mariano Rajoy took power in December that Spain has revised its deficit upwards. Spain's borrowing costs over 10 years have risen sharply in the past two weeks after the European Commission said it expected Madrid to miss its deficit reduction targets for this year, and the move to restructure Bankia. Madrid is considering introducing so-called Hispanbonds, or debt issued by Spain's 17 regional governments that would be guaranteed in some explicit way by the central government, a government official said last week. In spite of concern among Spain's European partners and investors over the state of its banks and regional spending, Mr Rajoy has remained steadfast in his insistence that no form of external aid will be necessary. A growing number of economists, however, argue that Spain is likely to miss its deficit targets, and the European Commission has gently opened the door for these to be softened, in spite of Madrid's repeated desire to stick to the existing plan.