Spain’s third-largest lender, Bankia, has become the symbol of the country’s runaway debt. The bank’s need for extremely serious amounts of cash has accelerated the vulnerability of Spain’s entire banking system, and so Madrid is facing potentially grave embarrassment.
Taken all together, Spanish banks need between 60 billion and 200 billion euros – the analysts have different opinions.
Spain is nationalising Bankia, which is staggering under sour property assets. The conservative government had already spent 4.5 billion euros to prop up the bank. But then came an announcement from the bank’s chairman which sent tremors through the financial markets.
José Ignacio Goirigolzarri said: “We are talking about 19 billion euros of capitalisation.”
Since the proposed total appeared to tsunami to 23.5 billion euros, Spanish debt tensions have soared. They make the cost of borrowing to service the debt unsustainably high.
A remark from Budget Minister Cristobal Montoro yesterday on radio whipped round the world.
He basically said: ‘The markets are closed to Spain.’
He continued with a prediction that a very muscular intervention such as Greece has seen will not occur in Spain’s case, because its problems are not of a kind that can be sorted out technically.
Spain has the fourth-largest economy in the euro zone. Its GDP represents 12 percent of the eurozone total. Ireland, Portugal and Greece together account for six percent of the eurozone’s GDP.
If bailing out the last three has been a challenge, the concept of doing the same for Spain is on a wholly different scale.
On Saturday, Prime Minister Mariano Rajoy sent the markets and the European Union a double message.
He said: “We are not at the edge of a precipice. That is not the reality. Spain will come through this storm by its own efforts and with the support of our communal partners.”
In the Senate, for the first time he called for communal guarantees of individual countries’ debts. So far he has stayed away from the eurobond controversy, notably involving France and Germany.
Rajoy said: “Europe needs to decide where to go in providing solidarity, needs to decide that the euro is an irreversible project, and that this is not a game, needs to support those who are in difficulty. It needs a fiscal integration, with a fiscal authority and an integration of the banks, a banking union, with eurobonds, with a banking supervisor and a guarantee fund for European savings.”
And yet the Spanish leader does not want others stepping in to manage things, but rather liquidity without strings attached. This was a surprise to the head of the Spanish Socialist opposition.
Alfredo Pérez Rubalcaba said: “European funds would logically mean European conditions, which is to say that European funding would bring consequences, and we need to discuss this in depth.”
Showing flexibility, Berlin has suggested that, as Spain’s public finances are not the main problem, bank reform might be enough to get funds flowing, without new economic reforms.
For an opinion on how realistic this might be, euronews spoke to José Carlos Díez, a chief analyst at the advisory services firm Intermoney in Madrid, about the unprecedented upset in banking and politics there.
Vicenç Batalla, euronews: The Spanish government looks like it expects to get money while avoiding outside intervention. The German government wants the Spanish to make a formal aid request in exchange for that. Do you think the European partners are going to open the tap without an intervention?
José Carlos Díez: Well, so far, the rules of the European Financial Stability Fund say that money lent to countries implies those states must accept some conditions. But they have to be specific conditions, and everything depends how they are defined. They can be strong, as was the case with Portugal or Ireland, or it can be smooth, and more focused on banks. That’s going to be up to the Troika and the EU countries.
euronews: Spain’s predicament is causing worries worldwide. French newspaper ‘Libération’, for instance, has a headline: “SOS Spain”, over a euro coin. How much money is the Spanish banking system really going to need?
Carlos Díez: Let’s consider that the three big Spanish banks Santander, BBVA and La Caixa represent half of the Spanish banking system and they’re not going to need help. As for the other half, aid is probably going to focus on 40 percent of the banking system, as the IMF has said. We don’t know the figures yet. We will have them soon, but we could be talking more or less about some 50-60 billion euros, including the aid that has been talked about for Bankia, the big bank which is going to need aid.
euronews: The European Commission is preparing a plan for a banking and financial union, but that will need Germany’s agreement, and it is against it. Will pressure work on Chancellor Merkel?
Carlos Díez: Well, let’s hope so, for the good of the whole of Europe. I think that, with so much uncertainty, the Commission plan offers a bit of light – a sign for international investors that the European project is moving forward, in a time when people are talking about the break-up of the euro.
The signs are positive, but that’s not a short-term solution. That is going to have to be taken up by the leaders at a summit, the national parliaments and the European Parliament. That means many months.
The situation in the markets is critical. The Spanish bond yield differential is being carefully scrutinised. Italy’s is also suffering a lot, and the European Central Bank hasn’t bought bonds in the secondary market for months. This tension can’t last long. Something may happen at any moment; let’s hope there is intelligent life in Europe, so that we’re able to see it coming.
euronews: Are the cases of Spain and Greece comparable?
Carlos Díez: It is extremely unpleasant to make comparisons, but an Arabian sheik can come to Europe and either buy one of our big companies, say Telefónica or Inditex, or, with the same amount of money, he can buy the whole Greek stock market, and still have money left over. I think that comparing Spain and Greece is a bit absurd. But… at least the Marx Brothers were funny.