3rd Jul 2022

EU ends funding for Spanish banks, praises austerity

  • Protesters put up notices against CatalunyaCaixa evictions of people who failed to pay their mortgage (Photo: jueves enmedio)

The EU says Spain's banks are back on a "sound footing," but one in four Spanish people are still unemployed.

Klaus Regling, the director of the Luxembourg-based European Stability Mechanism (ESM), made the statement on Tuesday (31 December) to mark the expiry of Spain's EU credit line.

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He described the rescue effort as "an impressive success story" and predicted the Spanish economy will "achieve stability and sustainable growth" in the near future.

He also praised the EU's austerity policy more broadly, saying: "The people’s readiness to accept temporary hardship for the sake of a sustainable recovery are exemplary … The Spanish success shows that our strategy of providing temporary loans against strong conditionality is working."

Spain will officially exit its bailout later this month, after Ireland quit its programme in December.

Unlike Cyprus, Greece, Ireland and Portugal, the Spanish rescue was limited to its banking sector instead of a full-blown state bailout.

It saw the ESM put up a €100 billion credit line in July 2012.

In the end, the ESM paid out €41.3 billion to a new Spanish body, the Fondo de Restructuracion Ordenado Bancaria (FROM), which channelled the loans, most of which mature in 2024 or 2025, to failing lenders.

Spain has said it will not seek any "follow-up assistance" after the bailout ends.

It is also selling off some of the renationalised banks which received ESM-FROM money.

A Venezuelan investor, Juan Carlos Escotet, announced in December that he will buy 88.3 percent of the NCG Banco group for €1 billion and that he will keep the majority of its 672 retail branches open.

NCG Banco got €9.1 billion in aid. The next bank to go up for sale, Catalunya Caixa, got €12.1 billion.

For its part, the European Commission last month warned that the Spanish economy is still in bad shape despite the good news.

It noted that "lending to the economy, and in particular to the corporate sector, is still declining substantially, even if some bottoming out of that contraction process might be in sight."

Meanwhile, the latest commission statistics say 26.7 percent of the Spanish labour force and 57.4 percent of its under-25s are out of work.

The labour force figure is second only to Greece (27.3%) and much higher than the EU's third worst jobs performer, Croatia (17.6%).

Spanish economy minister Luis de Guindos in an interview with the Cadena Ser radio station published on Wednesday promised that things will get better.

"[The year] 2014 will see the net creation of jobs, higher even than we predicted in September in the budget, and the jobless rate will fall," he said.

He noted that labour reforms, such as moves to help businesses take on more part time staff, will "make the market more dynamic."

He added that markets do not believe that Catalonia's plan to hold a referendum on independence in November will amount to much. "There is no national investor who considers that there may be a secessionist process in Catalonia at this time," the minister said.

A poll in the El Mundo newspaper published also on Wednesday showed that 71 percent of Spanish people do not believe they will see any real benefit from Spain's recovery until 2015 at the earliest.

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