Spain: Resisting a bailout

Demonstrators shout slogans against the government during a protest in front a Bankia bank branch in Barcelona, Spain, Saturday June 2, 2012 Spain has seen months of demonstrations against unemployment levels and austerity measures

They are playing defence in Madrid. And the moves are familiar. They have been played before in Ireland, Portugal and Greece.

The denials become ever more insistent that a bail-out is not needed. "The men in black will not be coming to Spain," said a senior minister yesterday.

Yet the cracks are showing.

There was the admission by Spain's budget minister that the country has all but been shut out of the credit markets, making it difficult to finance its needs.

The Spanish Prime Minister Mariano Rajoy has openly appealed to Europe to "support those that are in difficulty". That sounded like a prime minister running out of options.

Then there are the whispers - denied - that Germany is urging Spain to accept a rescue just for its banks. When Angela Merkel's spokesman was asked about it he did not exactly close the rumour down.

He said of Spain that "everyone knows that Europe is ready (to help)... but the decision lies with the Spanish government alone".

Black hole

Some in Europe would like the government in Madrid to apply to the main bailout fund, the EFSF, to rescue its banks. Their motive is that a bank bailout might prevent a full Spanish rescue - a much more problematical operation that would risk spreading instability to Italy.

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What Madrid would like is for its banks to borrow directly from the rescue fund - the EFSF. That would enable the government to deny it was seeking a bailout”

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Spain is facing a black hole in its banks, caused by the property crash. It does not know what bad loans are hidden there.

Some suggest it could be as much as 180bn euros. Government officials I have spoken to suggest the figure is much less. About 60bn euros. The head of Banco Santander says the troubled banks would need 40bn euros.

Spain is in a bind. It is struggling to reduce its budget deficit whilst in recession and facing unemployment of 24%. Targets have already been missed.

It has 44bn euros in reserve and can meet its obligations for months.

Furthermore the country has already financed the majority of the funding it needs this year. Only another 82bn has to be raised.

None of that deters investors from concluding Spain cannot service its debts, support its banks and its impoverished regions.

What Madrid would like is for its banks to borrow directly from the rescue fund - the EFSF. That would enable the government to deny it was seeking a bailout.

The political fall-out would be much less. The conditions would be easier. That, however, cannot be done under existing rules. Only governments can borrow from the fund. The Germans believe that ensures that governments are held accountable for using the loans and for abiding by strict conditions.

Spain is lobbying hard for its banks to be able to access the fund directly. "What's at stake," said one minister, "is the European project of the euro," a familiar refrain when countries or officials need help.

Banking union

Spain has joined the chorus calling for a banking union. It is but the latest of many plans to save the eurozone. They are usually launched in the weeks before a summit and their importance often diminishes later.

But a banking union is the idea of the moment. There would be monitoring of banks at an EU level. Deposits would be guaranteed on a pan-European basis and there would be a fund to wind down big banks. One of the major attractions is that a eurozone banking union would avoid investor flight or bank runs in one country.

The EU Commission will launch the first step towards a banking union later today when it proposes new powers for dealing with failing banks. What the Commission wants to do is to break the link between bailing out banks and governments. (Ireland transferred the debts of its banks on to the public books and pushed the country towards bankruptcy.)

The French, the Italians and the Spanish are already backers of a banking union. They believe that if the eurozone takes responsibility as a whole for propping up failing banks it will go along way to ending the banking crisis.

Germany is cautious, however. Angela Merkel - earlier this week - accepted the idea of much greater European supervision of cross-border banks. But Germany will not currently accept guaranteeing deposits or a new fund to wind up failing banks. German voters are likely to resist using their money to bail out foreign banks. It is a familiar story; eurozone governments backing a plan that depends on German taxpayers footing the bill.

A banking union will be on the agenda at a summit later this month, but even if all the obstacles were overcome it is unlikely to be in place to help Spain.

By saying that it is essentially shut out of the credit markets, Spain hopes to put pressure on the ECB - which meets later today - to resume its bond-buying programme.

That would help reduce borrowing costs. What Spain really wants is for the eurozone to agree to banks being able to borrow directly from EU funds.

There may be a halfway house. A German paper says that European officials are examining offering Spain a precautionary credit line from the EFSF to help it raise funds. That would buy Spain time whilst being able to claim it had not sought a bailout.

Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this

    Comment number 107.

    4 yrs, Emergency still Undeclared

    Anything but face 'the problem': inequality driving instability
    Collapse of aggregate demand, confidence, investment

    Anything but unlock 'owned & hoarded', our world & currency

    Who to bail-out 'owners', hiding among ordinary savers?

    Should it be 'tax-payer', workers, corporations, investors?
    Or 'share-holder', large & small, savers & pensioners?

    Start again?

  • rate this

    Comment number 106.

    Does everybody else get the feeling that very shortly the Germans will have had enough and come out Shouting " goodbye Mr Nice Guy, this is what is going to happen"

  • rate this

    Comment number 105.

    Please would all the Eurozone leaders do us all a favour? Tell schoolboy Dave to shut up and mind his own business, he and his banking and City friends are the problem and not the solution.

  • rate this

    Comment number 104.

    Angela is like a rabbit in the middle of the road dazzled by the headlights, she can run on in which case the German people have to pay the price of being the rich people in the Eurozone (as rich areas in all currencies do) or she can run back, say we went too far, better if some countries left. Instead she looks a bit one way then the other, dazed & dazzled, & just just waits to be run over.

  • rate this

    Comment number 103.

    A simple question:

    Where is 100 BILLION euros needed to bail out Spanish banks are going to come from?

    [Obviously not from IMF, and not from China, now in deep trouble]

    And what's going to be left to bail out ITALIAN banks in 6 months?

  • rate this

    Comment number 102.

    Does this mean that banks are calling in their mortgages, even though tax-payers are still bailing you out?

    You have your pound of flesh and blood, on a daily basis, from the taxpayer. That's enough now - so back away because tolerance is below zero. The majority of people only quietly tolerate you because you hold their wages/savings.

    Man up to your responsibility for the mess you created.

  • rate this

    Comment number 101.

    19th century UK bank deregulation

    'Once investors’ personal wealth was no longer in jeopardy, bank credit would free up. In the UK, the change came with the Limited Liability Act and Joint Stock Companies Acts of 1855 and 1856.''

    Thus 19th century UK bank deregulation Limited Liability shifted debt-credit risk from PRIVATE shareholders to UK PUBLIC taxpayers = Government bailout of UK banks!

  • rate this

    Comment number 100.

    I see DAZ Dave is trying to get in on the act. Can someone please tell him to shut up and that the rest of Europe simply laugh at his childish self important rants from the sidelines.

  • rate this

    Comment number 99.

    OldPerson @65
    When Europe defaults…
    UK 'taxpayers' will 'pay'

    'Capital' does NOT want to pay, for motherhood, childhood, education, sickness, transition-costs, or old age

    Not even too keen on roads & railways, not for 'people' to clog

    Soon to think more of defence, around gated-communities

    Who 'should' control 'capital'?

    On a postcard, to our 'leaders' please!

    Make it easy: Equal Citizens

  • rate this

    Comment number 98.

    71 coram

    "Financial journalists, globally, running around screaming the sky is falling"
    We seem to forget that 5 european countries are ranking in the world's top 10. EU as a whole is, by far, the wealthiest and largest economy in the world, topping the US by more than 2.000 billions. It's assets represents more than one-third of the world’s wealth.
    Time to keep things in proportion.

  • rate this

    Comment number 97.


    Such nonsens.Germans reject Eurobonds because it needs a rewritting of german constitution and as well its breaching a key EU treaty
    what was even in place before the Euro was created.

  • rate this

    Comment number 96.

    cont..19th century UK bank deregulation:

    'Ownership and control became legally distinct – a crucial historical shift. Nevertheless, shareholder discipline was still proving an effective brake on risky lending and there was pressure for further liberalisation. One obvious solution was to limit shareholder liability so that their losses were no greater than their initial investment.'


  • rate this

    Comment number 95.

    So any day now we will see the vultures from Goldman Sachs arrive with their worthless paper IOU's and there even more disgusting asset stripping. They have already done it to Greece and they won't stop until the Eurozone is under the control of the USA markets. Not only did they cause the crisis , but they hate any competition to the failing US dollar. The US idea of growth = war = profits.

  • rate this

    Comment number 94.

    #87 BP

    "If Germans said they reject the eurobonds because it'd be a disincentive for reforms in troubled countries they would have a point."

    --that has also been said OFTEN !

    -- " war profiteering" ? --- where is the logic ( without emotion) ?

  • rate this

    Comment number 93.

    Latest Indy headline.
    "David Cameron and Barack Obama urge 'immediate plan' over eurozone crisis"
    Just what Europe needs, the Anglo/Americans yelling from the touchline. The USA caused the crisis, the UK and CoL are/have made fortunes from it. The UK economy is a chimera and the USA legislators can't even agree to disagree. Maybe Obama will send over Timothy Geithner to give another lecture.

  • rate this

    Comment number 92.

    The question for Spain, the rest of the PIIGS, the unnamed other troubled EZ economies, and the EU itself is how much longer will Germany be willing to foot the bill for kicking the can down a dead end road. If you asked Chancellor Merckel to put a price on saving the Euro that would be too high for Germans to pay she couldn't.But her voters will.She'd spend them broke like any communist would

  • rate this

    Comment number 91.

    19th century UK bank deregulation:

    'As long as capital in banks was restricted to a small number of unlimited liability partners, credit was constricted. But in 1826, the six‑partner restriction on UK banks was lifted, allowing them to operate with an unlimited number of shareholders as joint-stock banks. Ownership and control became legally distinct – a crucial historical shift.''


  • rate this

    Comment number 90.

    87 Germans reject Eurobonds because when the recipients of the loan, that's what a bond is, the PIIGS default on them it will hurt Germans in their own pocketbooks.It's all the Euro was ever about, Europeans all convinced they would get something for nothing.How utterly naive, how fatal, how quintessentially European.That's how it was sold to them and few ever questioned the obvious lunacy of it.

  • rate this

    Comment number 89.

    'The global environment was changing, however. During the first half of the 19th century, rich countries were hungry for capital to finance investment in infrastructure, including railways. As long as capital in banks was restricted to a small number of unlimited liability partners, credit was constricted. But in 1826, the six‑partner restriction on UK banks was lifted...''


  • rate this

    Comment number 88.


    Wrong target: even 'world government' OK if it guarantees equal dignity of citizens, full-employment, equal income-share in education, old age, sickness, transfer-list

    Given equal incomes, who gets investment?
    Between equal-chance-competition start-ups & efficiency-sited majors

    Who gets robots? And chimneys?
    Land 'nationalised': democracy decides
    Young not always 'moved-on' by NIMBY


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