Spain lobbies harder for EU bank support

Posted on May 31, 2012

Spain has intensified diplomatic efforts to win support for a mechanism for direct European support for troubled banks as the government faces increasing pressure at home and abroad to reveal details of the €19bn rescue of Bankia.

Soraya Sáenz de Santamaria, Spain’s deputy prime minister, on Wednesday night flew to Washington ahead of a meeting on Thursday with Christine Lagarde, managing director of the International Monetary Fund, while Luis de Guindos, finance minister, met with his German counterpart on Wednesday.

    A government official declined to comment on the content of the meetings, and said Spain kept in regular contact with eurozone governments and international organisations to discuss the situation in Europe, including the pre-arranged meetings in Washington and Berlin.

    The centre-right government of Mariano Rajoy has suggested European rescue funds should directly recapitalise banks, sidestepping intervention in the finances of national governments, and for the European Central Bank to take action to support Spanish debt – a position not shared by Germany.

    On Monday Mr Rajoy repeated his insistence that Spain would allow no bank or regional government to fail, and that no international rescue would be needed.

    When asked about direct injections of capital into banks on Monday, Mr Rajoy said: “Lots of people are in favour of that, and I certainly am.”

    The European Commission on Thursday called on Madrid to explain quickly how it plans to pump the new money into Bankia amid uncertainty that has pushed Spain’s borrowing costs up to euro-era highs this week.

    “The sooner uncertainties are removed the better,” Amadeu Altafaj, European Commission spokesman, said in a radio interview, adding that the commission would then study the proposals to see if they complied with rules on state aid.

    Spain said on Wednesday the €19bn would be raised by the Frob, the state bank bailout fund, after earlier in the week floating and then pulling back from an idea based around injecting government debt directly into the lender.

    Mr Rajoy is facing calls at home to open an investigation into Bankia, with the parliamentary spokeswoman for Spain’s opposition Socialist party labelling a decision to veto an in-house inquiry “shameful”.

    The government was “spreading a blanket of silence, and has shelved this issue”, Soraya Rodríguez said in a Spanish radio interview.

    The government, elected in November with an absolute majority, has pushed through a rapid programme to reduce the country’s budget deficit, reform a labour market with 23 per cent unemployment, and clean up a banking sector saddled with bad loans from a decade-long property bubble.

    However, many international observers and investors have become increasingly concerned that Mr Rajoy’s swingeing austerity programme will further cripple economic recovery as Spain lurches deeper into recession, and that the €19bn rescue of Bankia will preclude further public money being injected into troubled lenders.

    Mario Monti, the Italian prime minister, on Thursday warned of “huge possibilities of contagion” due to uncertainty in the eurozone, and said rising bond yields risked delaying economic reforms.

    “We have to be mindful of the sustainability of fiscal discipline and the reform process,” he said. “It is obvious that there is going to be, sooner or later, a backlash against fiscal and structural discipline”.

    Spain’s 10-year borrowing costs, and the difference between those and Germany’s, both fell back slightly on Thursday, with the latter dropping to 6.5 per cent, from 6.7 per cent.

    Data from the Bank of Spain showed a net €97bn left the country in the first three months of the year as foreign investors pulled out money.

    This data tallied with earlier observations from economists that foreign investors were selling Spanish government bonds, while Spanish banks were increasing their holdings significantly.

    Data from Barclays Capital showed that non-resident holders of Spanish government debt fell from around 40 per cent in May 2010 to below 30 per cent by March this year.

    You must be logged in to post a comment Login