Monday

25th Jun 2018

Spain appeals for EU bail-out of struggling banks

  • Calling Europe: Montoro told Ondo Cera that 'the men in black won't be coming to Spain' (Photo: morberg)

Spain's budget minister has during a radio interview appealed for an EU bail-out of the country's banks.

Speaking on Tuesday (5 June) on the Onda Cero radio station, Cristobal Montoro said: "Europe should move swiftly to allow its institutions to directly boost the capital of troubled banks in Spain."

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He added: "The amount needed by Spain's banking system isn't very high, nor excessive. What matters is the procedure to provide such an amount - and that's why it is important that European institutions open up and proceed with this."

His reference to "direct" aid to banks is an appeal for the Union to use its Luxembourg-based EFSF bail-out fund to help Spanish lenders.

The alternative - a bail-out of the Spanish state involving the EFSF and the International Monetary Fund (IMF), as in Greece, Ireland and Portugal - comes with outside supervision of national finances and would increase the country's budget deficit.

He said Spain can no longer borrow money from markets due to loss of confidence which has seen borrowing costs shoot up compared to Germany.

"What that premium says is that market doors are not open to Spain," he noted.

The cost of a Spanish bank rescue is being estimated at between €40 billion and €90 billion.

Montero added that a full-blown EU-IMF bail-out is unfeasible because the EFSF has €440 billion in the pot, while Spain, the eurozone's fourth largest economy, owes foreign lenders almost €1 trillion.

"Spain can't really be bailed out, from a technical point of view ... The men in black are not going to come to Spain" he said, referring to EU and IMF finance inspectors.

The Spanish Prime Minister, Mariano Rajoy, and its King, Juan Carlos, also appealed for EU solidarity in separate remarks the same day.

Rajoy told the Spanish senate: "Europe must say where it is going, to show unity, it must say the euro is an irreversible project, that it is not in danger, it must help countries which are in difficulty."

King Juan Carlos said while in Chile: "Europe needs austerity and discipline but ... solidarity is also necessary to make the financial burdens that crush some of our countries today more bearable."

Oui

The Spanish cry got a sympathetic ear in France.

French foreign minister Laurent Fabius told media while visiting Rome also on Tuesday that the EU should take a flexible approach to Madrid.

He said: "We have to find mechanisms, methods to bring the necessary funds to allow the system to continue to function properly."

He added that if Spain is forced to save its banks itself it will cannibalise the country's budget: "If, to save the bank, you have to increase the deficit ... then it's the snake eating its tail."

Nein

Germany - which believes Montoro's idea would spread risk to German banks - rejected his plea.

Volker Kauder, the chief whip of Chancellor Angela Merkel's Christian Democratic Union party, told the ARD TV station on Wednesday morning: "I do not see this possibility."

He added: "Germany will demonstrate its solidarity with other states in Europe ... but the states of Europe must for their part undertake every endeavour to contribute to solving those problems themselves."

The European Commission will on Wednesday propose plans for an EU "banking union" to prevent a Spanish-type scenario in years to come.

But Montero's words will be tested already on Thursday at an auction of €2 billion worth of Spanish bonds.

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The EU commission has unveiled proposals to change the too-big-to-fail rationale that has seen billions of euros of public money pumped into ailing banks.

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The EU should not overuse the financial system in order to achieve environmental goals, or it risks the emergence of a green bond bubble which would be detrimental to the financial sector and hinder the achievement of climate targets.

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