Pain in Spain grows as evictions spark new wave of protests

But many were not convinced. For Santiago Domínguez, of the Galician Nationalist Party, which helped approve the ultimatum to banks in Vigo, Spain is “facing a new dictatorship, that of the banks under the captaincy of Merkel and her chief general, Rajoy”. The current wave of evictions, he added, amount to “a veritable existential drama”.

Yet many would argue that it is Spain’s banks which are now facing an existential crisis. Although some believe the total €39.5 billion package for the banks that euro zone finance ministers approved on Monday could end up being too little for the country’s needs, it comes with tight strings attached.

Lenders face the daunting task of shedding toxic property assets, slimming down substantially and refocusing their operations. Details of the plans for Spain’s private banks that need assistance are due to be unveiled on December 20th and the government insists they only require an injection of €1.5 billion.

In the meantime, Spain’s state-held entities are required to transfer €45 billion of their property assets to the Spanish version of Ireland’s Nama at an average discount of 63 per cent.

“There is a huge need for the banks to clean up the mess on their balance sheets – that is the biggest challenge right now,” says Manuel de la Rocha Vázquez, an economist at the Fundación Alternativas. “They need to turn into much more balanced businesses.”

The fact that the largest of these lenders, BFA-Bankia, will cut 6,000 jobs over the next four years, gives an idea of how tough the EU conditions are.

BFA-Bankia, and fellow nationalised lenders Novagalicia and Catalunya Banc, will have to change their focus, lending to individuals and smaller businesses within geographical range of their own heartlands. This new emphasis will end their lending to property developers and rein in their wholesale activities.

Spain is expected to implement similar guidelines for all its cajas, or regional savings banks, next year.

Reform

Despite the Rajoy government’s raft of measures to help those struggling to pay their mortgages, the administration is facing pressure to go further and reform the mortgage law in favour of homeowners. A report by a panel of judges, which largely blamed the “frivolity and bad practice” of banks for the evictions problem, helped turn up the heat on the government.

In an effort to stem the tide of ill-will and talk of mortgage reform, Spain’s AEB banking association last month issued an open letter defending its actions as both ethical and legal. The letter claimed the extent of the evictions crisis was being exaggerated, given that many foreclosures are of second homes and businesses.

“The indiscriminate criticism of the financial sector, accusing it of abusive and irregular practices and a lack of social sensitivity, only contributes to generating undue social alarm,” it read.