EU refuses to confirm Spanish aid request
By Sarah Collins | Friday 08 June 2012
EU officials refused to confirm, on 8 June , that the Spanish government was on the cusp of requesting aid for its banking sector, denying that euro finance ministers were holding an emergency conference call on the subject.
Reuterssaid the call was scheduled to take place on 9 June, but five officials contacted by
Europoliticsrubbished the reports. “We have no news of any request from Spain for financial assistance,” said a spokesman for Economic Affairs Commissioner Olli Rehn. “The appropriate instruments are there ready to be used in agreement with the guidelines agreed on in the past,” he added. “We’re not at that point.”
The reports follow a downgrade of the Spanish government by Fitch Ratings, which slashed its assessment of Spain’s solvency to ‘BBB’ from ‘A’ on the back of the rising bank bailout bill, which it predicts will force the country to bid for an EU rescue. In a press release, on 7 June, the agency cited Spain’s rising regional debt, the continuing recession and possible contagion from the Greek crisis as aggravating factors for the downgrade.
Spain agreed to let external auditors Oliver Wyman and Roland Berger in to stress test its banks, the results of which are due within days, while the International Monetary Fund’s own mission was due to be completed on 8 June. The government has said it will announce the final cost of the bailout - and its options - after the audit is completed. Fitch estimates the final cost will be between €60 billion and €100 billion, which, because of punitive borrowing rates, will be impossible for the government to finance on its own. Other estimates start at €40 billion, with €23 billion of that being eaten up by Bankia, the beleaguered banking giant that was formed from the merger of seven regional savings banks.
The central issue for EU officials is how to separate aid for Spain’s troubled banks from the already indebted state. Spain has said money could be channelled to individual banks through its bank restructuring fund, the FROB - an idea that has found sympathy with some EU officials, who point to the fact that the Irish rescue in 2010 - principally a banking sector bailout - will cause the country’s debt mountain to peak at 120.2% of GDP next year, twice the EU’s limit.
Under the European Financial Stability Facility, the EU’s current bailout fund, banking sector-specific aid is possible, though only if the state ultimately shoulders the debt burden. There is a proposal on the table to amend the future European Stability Mechanism, which is due to come into force in July, to allow it to lend directly to banks, but Germany is fearful that that would take pressure off governments to reform their economies.
However, the EU has repeatedly said that it wants to “sever the link” between sovereign debt and banking debt, a principle that was echoed by Eurogroup President Jean-Claude Juncker, on 7 June. “We all know that the Spanish banking sector is under stress while the macroeconomic situation is evolving rather well,” he told reporters after a conference in Brussels. “The Spanish government has taken all the decisions on budgetary consolidation that are needed.”