By Nick Mann | 25 June 2012
Spain could receive a multibillion euro bailout of its banking sector within weeks after formally asking for support from other eurozone countries this morning.
Economy minister Luis De Guindos did not request a specific sum but said the maximum would be €100bn. The funding package is expected to be used to recapitalise the country’s banks and provide a buffer against future shocks.
European Commission vice-president Olli Rehn said the restructuring of Spain’s banking sector was ‘key’ to restoring confidence in the Spanish economy and making it easier for companies and households to access the credit needed to sustain the country’s economic recovery.
Commission officials will now step up their work on carrying out a ‘clear assessment’ of Spain’s banking sector and its needs, and also on finalising the conditions that will be attached to the aid package.
‘The policy conditionality of the financial assistance, in the form of a European Financial Stability Facility/European Stability Mechanism loan, will be focused on specific reforms targeting the financial sector, including restructuring plans which must fully comply with EU state-aid rules,’ Rehn said.
Spain will also be expected to honour its deficit reduction commitments under the EU Excessive Deficit Procedure, and to ‘keep the same determination and the momentum’ in reforms aimed at creating growth and jobs.
‘There cannot be sustainable growth without sustainable public finances, both at national and sub-national levels. Progress in these areas will be closely and regularly reviewed in parallel to the financial assistance,’ Rehn said.
He added that he was ‘confident’ that a memorandum of understanding on the exact details of the funding could be finalised ‘in a matter of weeks’ to allow the restructuring to proceed.
According to Rehn, the €62bn estimated as necessary by consultancies Oliver Wyman and Roland Berger last week was a ‘good starting point’.
But think-tank Open Europe said the final amount required by the country’s banking sector could be far higher if the economic situation in both Spain and the eurozone as a whole continued to get worse.
Head of economic research Raoul Ruparel said:‘Funding for the Spanish banking sector is an incredibly fluid target and could go well beyond €100bn if the situation in the Spanish and eurozone economy continues to deteriorate.
‘Though it comes with merits, if not carefully managed and subject to the right conditions, this package could merely serve to deepen the dangerous loop between Spanish banks and government without offering a clear solution to the crisis. In turn, if more pressure is piled on Spanish banks and therefore government debt, it could force Spain into a full eurozone bailout.’
Ruparel said that, with the Spanish state facing funding costs of €548bn over the next three years, the eurozone’s existing bailout funds were not equipped to handle a full-scale rescue of Spain’s economy.
‘To avoid such a scenario, the current bank bailout plan just has to come with the right conditions – including losses for bank bondholders and bank wind-downs.’
