The Spanish government’s reported plan for rescuing the country’s fourth-largest lender Bankia unsettled the financial markets on Monday.
Sources said Madrid was thinking of raising money to “recapitalise” Bankia using Spanish government bonds, which would then become collateral to borrow more cash from the European Central Bank, thereby directly involving the ECB in sorting out Spain’s banking sector.
Shares in Bankia plunged, the amount of interest that Madrid is having to offer to sell its government bonds jumped and the Spanish people continue to express their anger that they are having to pay to bailout the banks.
The comments of Madrid resident Javier Casas were typical: “I don’t think it’s right that we have to pay for the debts of a private entity whose directors and managers generated the debt. No, I don’t think it’s fair.”
The financial markets are scared the Spanish government – which is already struggling to bring its budget deficit under control – may have to find billions more save other ailing banks.
They are in trouble because the bursting of the Spanish property bubble and the country’s slide into recession means they are awash with worthless investments, loans that are never going to be repaid and repossessed homes.
Prime Minister Mariano Rajoy pinned the blame for rising Spanish borrowing costs not on Bankia, but on concern about the future of the euro zone and again ruled out seeking outside aid to revive a banking sector laid low by a property boom that has long since bust.
“There are major doubts over the euro zone and that makes the risk premium for some countries very high. That’s why it would be a very good idea to deliver a clear message there’s no going back for the euro,” Rajoy told a news conference.
“There will not be any (European) rescue for the Spanish banking system,” Rajoy added, before backing calls for the eurozone bailout fund, which will be in place from July, to be able to lend to banks direct.