Spain
bailout terms 'to be agreed within a week'
Urgency
reflects growing consensus that Spanish collapse might start chain
reaction that could topple Italy and destroy the euro
8
June, 2012
The
first planks in a dramatic bailout for Spain will be bolted together
this weekend, with a final figure on the size of the rescue package
to be ready within a week, according to sources in Brussels and
Madrid.
The
moves towards bailing out the finance sector of the eurozone's fourth
biggest economy reflect a growing consensus that a Spanish collapse
must be averted to prevent a devastating chain reaction that could
bring down Italy and destroy the single currency. There were fears
that this would spark a global downturn extending to the US and
China, and both countries urged Europe to move swiftly to fix its
long-running debt crisis.
President
Barack Obama called on European leaders on Friday to strengthen their
banks and urged Greece to remain in the eurozone. "There is a
path out of this challenge," Obama told reporters at the White
House. "These decisions are in the hands of Europe's leaders;
they understand the urgent need to act. There are specific steps they
can take right now to prevent the situation from getting worse. One
of those steps is taking clear action as soon as possible to inject
capital into weak banks."
With
fears that Greek voters may add further fuel to the fire by electing
a government that will lead them out of the euro on 17 June, Spain
hopes to have a final figure ready by next Friday, sources in Madrid
said.
Senior
finance officials from around Europe are due to start drawing up
detailed plans this weekend on how to shore up Spain's banks in a
so-called "bailout lite" that would be smaller and less
onerous than those of Portugal, Greece or Ireland. Spain must
formally request help and last night Vitor Constancio, vice-president
of the European Central Bank, told Portuguese radio that Spain was
expected to do so "soon", according to Reuters.
Prime
minister Mariano Rajoy's conservative government insists that a full
and final figure on its needs can only follow independent valuations
of the country's banking assets. The deadline for delivery of those
estimates is 21 June, when eurozone finance ministers are due to
meet, but the Spanish government is pressing auditors to provide them
by the end of the week.
"No
decisions have been made," Spain's deputy prime minister, Soraya
Sáenz de Santamaría, said . "The government will declare its
position once it knows the estimates."
A
first indication would come by Monday, she said, with an
International Monetary Fund report on Spain. That is expected to say
that Spanish banks need a capital injection of €40bn (£32bn) and
may be considered sufficient for a preliminary bailout request over
the weekend, especially as the government has already seen the
figures.
It
remained unclear, however, when an announcement would come and how
detailed it would be.
A
Spanish bailout will almost certainly be targeted directly at its
banks, avoiding a wider crisis that could prevent Spain borrowing on
the markets to fund government spending.
Payment
would probably be made by the European Financial Stability Facility
to Spain's bank restructuring fund, known as the Frob. Speculation
about the amount needed varies wildly. Three former savings banks,
including the recently nationalised Bankia, have already asked for
€28bn.
Spain's
senior banker, Santander boss Emilio Botin, has said €40bn would be
enough, but a second recession in three years will inflict further
damage on a banking system already struggling to digest vast amounts
of toxic real estate left over from a burst housing bubble.
The
ratings agency Fitch estimates Spain's banks need additional capital
of between €50bn and €100bn, though part of this could be covered
by the banks themselves, with stronger banks such as Santander and
BBVA avoiding state aid. Neighbouring Portugal, which has a much
smaller economy, accepted a €78bn euro bailout.
It
would be the first time that a mechanism aimed directly at a national
bank restructuring fund has been used and it was unclear what
European officials would demand in return.
Experts
said Rajoy's attempts to wriggle out of external control of Spain's
economy were doomed to failure. "The terms and conditions are
going to want to see a clear path to restore growth and structural
budget balance. That will include structural reforms and fiscal
measures," said Luis Garicano, of the London School of
Economics. "But I guess they will try to find a face-saving way
of doing this."
"There
will have to be conditions, otherwise what will the Germans say to
their voters?" said Santiago Carbó, of Granada University.
"They won't be as detailed as for Greece or Portugal, but they
won't just be about restructuring the financial sector."
Pension
reforms, increases in sales tax, a pruning of Spain's three
million-strong civil service and further pressure on the government
to slash its deficit with austerity measures could be on the list of
demands. Concerns about the people running Spain's former savings
banks, whose loans to property developers and speculators have
poisoned the whole financial system, may also see demands that
political appointees be removed from boards.
Spaniards
are deeply pro-European and were not thought likely to turn their
rage against the EU despite the prospect of even more suffering. A
recent poll said 62% per cent already expected a bailout.
Spain
has repeatedly warned that its economy is too big to fail without
bringing down the euro.
Ministers
have said the euro's fate will be played out in Spain and Italy over
the coming weeks, while challenging European colleagues to agree a
plan for greater banking and fiscal union in order to calm market
pressure.
With
European institutions and other countries now increasingly in favour
of such a union, pressure on Spain's borrowing costs has relaxed over
the past week despite a sudden downgrade by the Fitch ratings agency
on Thursday.
Unemployment
in Spain is already at 24% and a douple-dip recession looks likely to
last until well into next year, bringing more misery.
The
European commission said Spain had made no request for aid, but a
spokesman added that if it did, the eurozone was ready to help.
"If
such a request were to be made, the instruments are there, ready to
be used, in agreement with the guidelines agreed in the past,"
spokesman Amadeu Altafaj said. "We are not at that point."
Germany's
chancellor, Angela Merkel, denied pressing Spain and said it was up
to Rajoy to request a bailout. "It's down to the individual
countries to turn to us," she said. "That has not happened
so far."
Unnamed
German officials told Reuters, however, that an agreement needed to
be hammered out before the Greek election next weekend.
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