10th Dec 2019

Draghi: Nobody can force Spain to seek bail-out

European Central Bank chief Mario Draghi on Wednesday (6 June) did not rule out further cheap loans to struggling euro-banks and said that nobody can force Spain into a bail-out.

After its monthly governing council meeting, the ECB left its key interest rate unchanged at one percent, despite some members asking to lower it.

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"Some of the problems in the euro area have nothing to do with monetary policy," Draghi told a press conference after the meeting, in a bid to keep pressure on southern governments to carry through tough austerity measures.

The Italian banker admitted that the situation on the financial markets has become "dysfunctional" again compared to only three weeks ago, but insisted that the situation is nowhere what it was in 2008 after the collapse of US investment bank Lehman Brothers.

He said it is not "correct" to talk about a three-month deadline to save the euro, as US financier George Soros and top economist Paul Krugman projected in recent weeks.

"This is not the right way to cope with these issues," he said.

He added that Europe is not the only one to blame for economic problems in China or Brazil.

"To my knowledge, the US is not a small-scale economy. Countries around the world should first focus on their own reforms before worrying about spillover effects," he said, hinting at increased criticism from Washington that eurozone leaders are dragging their feet and letting the euro-crisis bring the entire world economy down.

When asked if the ECB could inject more cheap loans into eurozone banks and resume its bond purchasing programme for Italy and Spain, Draghi smiled and suggested the journalist already knew the answer: "We never pre-commit."

However, he said the ECB could not replace reforms that needed to be implemented by the national governments.

As for the Spanish calls for EU money - be it from the ECB or the eurozone bail-out funds, but without Madrid having to be submitted to a full-scale bail-out programme like Greece, Portugal and Ireland - Draghi said one had to wait for exact data on how much money is needed.

"Any funding decision should be based on the realistic assessment of needs to recapitalise banks and the money available to the government without needing to go for external support," he said.

A first assessment is due to be presented by the International Monetary Fund next week, with two more independent audits contracted by the Spanish government coming out later this month.

Draghi insisted that any decision should be a sovereign one taken by Spain. "Nobody can force them to do anything," he said - a veiled reference to Germany, whose government is reportedly pressuring Madrid to ask for a soft bail-out from the temporary bail-out fund, the Luxembourg-based European Financial Stability Facility (EFSF).

The EFSF was already used to recapitalise Greek banks as part of its second bail-out.

Its bonds can be specifically used to fund ailing banks, but the process has to be steered via the government, which first has to apply for international funding, piling up even more debt on the public balance sheet.

Spanish officials would rather see this rule changed, or have the upcoming permanent bail-out fund, the European Stability Mechanism granted the power to recapitalise banks directly.

EUobserver understands that neither is possible without legal changes that need to be ratified by all 17 national parliaments in eurozone member states.

But France on Wednesday once again threw its weight behind Spain, saying it also wants the €500-billion-strong ESM to be able to fund banks directly.

"France is in favour of the future ESM being used to directly recapitalise banks with the appropriate conditions for supervision," French finance minister Pierre Moscovici told reporters in Paris.

Speaking in Brussels after meetings at the European Commission, Spanish economy minister Luis de Guindos said he is not applying for any bail-out and that it would first wait for the audits later this month before deciding how to recapitalise the banks.

"I have absolutely not discussed any intervention in Spain's banks today. I was talking about the economic policy that the Spanish government has been applying ... Of course what we are saying is that with more Europe we would with no doubt get out of this difficult situation, this crisis," he said.

A meeting of the world's biggest banks in Copenhagen on Wednesday meanwhile steered clear of any doomsday scenarios in its public sessions.

But privately, some participants admitted that there are increased worries that a run on the Spanish banks - as people move their savings outside the country - could aggravate the crisis to the point where "no summit will help anymore."

"Many of these [bankers] avoid to talk publicly of what is really going on. It's like the orchestra on the top deck of the Titanic. Everybody is saving face, but once they're in the privacy of their cabin, they are all panicking and looking for the life vest," one Finnish participant told this website.


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