Spain: EU’s first ‘bailout lite’?
By Sarah Collins | Monday 11 June 2012
Spain has become the fourth eurozone country and seventh EU state to request outside financial assistance since the start of the financial crisis. The bailout agreed in principle on 9 June is the first of its kind in the EU, as aid is limited to the country’s beleaguered banking sector. Here,
Europoliticsexamines the issues at stake.
How much will Spain get, and from where?
Between €37.1 billion (IMF estimate) and €100 billion (upper limit agreed by the Eurogroup) from the EFSF, and afterwards, when it comes into force, the ESM. Spain will be charged interest on the loan, probably of between 3% and 4% (going by previous bailouts, but depending on how much the EFSF and ESM are charged to borrow on markets), which banks, via the Fund For Orderly Bank Restructuring (FROB) and the state, will have to pay back in full.
What conditions are attached to the loan?
The state, via the FROB, must comply with EU competition rules. According to EFSF guidelines, other conditions could include those laid down in the EU’s recent proposal on bank resolution (COM(2012)280/3), such as requiring banks to draw up recovery and resolution plans, handing supervisors emergency powers to parachute in interim managers or requiring shareholders and investors to take losses. Banks will have to pay back the loans and may have to consider selling all or part of the business to foreign lenders. There is no direct link between the loan and Spain’s economic and budgetary reforms, but EU officials point out that it will still have to meet the targets it has set itself - and which have been approved by the EU - under the Stability and Growth Pact (for budgets), the ‘Europe 2020’ strategy (for jobs, education, research, climate and poverty reduction), and the macroeconomic imbalances procedure (where it will have to monitor trade levels, wages, inflation and prices).
Will there be a bailout ‘troika’?
Not strictly. The EU says four institutions will be monitoring Spain’s bailout: the Commission, the European Central Bank, the European Banking Authority and the International Monetary Fund. EU officials, on 11 June, called it a “quartet,” though the EU will not have the intrusive powers over the government’s accounts that it has in Ireland, Portugal or Greece. Access will be limited to individual banks and supervisors.
Will Spain’s debt and deficit rise as a result of the loan?
Yes and no. Spain’s debt load certainly will, with Fitch Ratings estimating it would inflate Spain’s debt-to-GDP ratio to 95% by 2015, up from 68.5% last year. However, Eurostat has said that it will determine on a case by case basis if the loans affect the deficit. In Greece, certain loans to banks funnelled through the Hellenic Financial Stability Fund have impacted on the government’s deficit, while in Ireland, the state’s National Asset Management Agency was allowed to buy toxic assets from banks without adding to it. Daniel Gros, an economist at the Centre for European Policy Studies (CEPS), said the loan will likely “make market access even more difficult” for the Spanish government because of the increasing debt load.