EU awaits Spanish aid request
By Sarah Collins | Thursday 21 June 2012
A request from Spain for EU aid for its beleaguered banks was still not forthcoming at a meeting of Eurogroup finance ministers, on 21 June, despite the results of a stress test of the country’s financial sector by external auditors being made public. Spanish Finance Minister Luis de Guindos said on his way into the meeting that Spain would make a request “in the coming days” and that he would have a clear picture of the capital holes in Spanish banks by the end of July.
Spain was granted up to €100 billion in aid from the eurozone’s rescue funds - either the existing European Financial Stability Facility or the future European Stability Mechanism - during an emergency Eurogroup meeting, on 9 June. The aid would be funnelled to the banking sector via Spain’s Fund for Orderly Bank Restructuring, the FROB, but would still appear as debt on the government’s books, a fact that Irish Finance Minister Michael Noonan said was responsible for pushing up the cost of borrowing for the government. At a short-term bond auction, on 21 June, Spain was charged a massive 6.07% on its five-year bonds, while earlier the cost of issuing ten-year papers went beyond 7%, a level considered unsustainable for any government - and especially for an economy in recession. “I thought that the experience of Ireland should have been learned by the European authorities, and to recapitalise their banks and to transfer the accounting of it directly on to the sovereign seemed to me an additional burden,” Noonan said. “It would be Ireland’s policy to separate banking debt from sovereign debt.”
The government has yet to make a formal request. As
Europoliticswent to press, the results of a second round of stress tests were yet to be released. The first, by the International Monetary Fund, predicted Spanish lenders would need around €40 billion, while a third is due at the end of July. Fitch ratings agency this week upped its estimate of the size of Spanish banks’ capital shortfall, saying the country could need between €50 billion and €60 billion in a best-case scenario, and between €90 billion and €100 billion in the worst case.
EU officials, meanwhile, are trying to work out which fund should provide the aid and what conditions would be attached to it. The EFSF and the ESM can both offer direct aid to the banking sector, but the ESM has seniority, meaning it would be paid back before all other Spanish bondholders. French Finance Minister Pierre Moscovici said the outline of a plan for Spanish banks was “robust and sufficient” and that he was confident in the Spanish government’s commitment to cut spending and overhaul the public sector and labour market. “I am confident in Spain’s ability to make the necessary reforms, and I am confident in the European Union’s capacity to respond to the difficulties in the banking sector,” he said.
Spanish Prime Minister Mariano Rajoy is due to meet his German, French and Italian counterparts at a four-way summit in Rome, on 22 June, which could be the occasion for a formal aid request.