Spanish bailout conditions setback for Irish hopes
THE EUROPEAN bailout of Spain will proceed without direct aid for the country’s banks, dealing a blow to Dublin’s campaign to ease the terms of the Irish bank rescue.
Euro zone finance ministers resolved at the weekend to respond favourably to Spain’s request for up to €100 billion in emergency aid to rescue its crippled financial sector.
Minister for Finance Michael Noonan said it would provide “much-needed confidence and stability in the euro zone” and was particularly important for Ireland’s economy.
Emergency loans will be set aside for Spain’s banks and prime minister Mariano Rajoy will not be compelled to adopt policies in addition to the austerity programme already approved by EU ministers.
However, the country failed to overcome German objections to a proposal for the funds to go directly to the banks and remain off the Spanish national debt.
France, Italy and the International Monetary Fund backed Spain, and the Government hoped that any such departure would create a precedent to be followed by Ireland.
With no sign of any breakthrough in the push to restructure the Anglo Irish Bank promissory note scheme, the Coalition saw big potential to develop an alternative approach if Spain secured direct bank aid.
But Berlin refused to yield, saying the Spanish state must assume responsibility for repayments to the EFSF and ESM bailout funds.
“Spain carries the liability . . . has oversight of its banks and will distribute it,” said German finance minister Wolfgang Schäuble.
The development comes one week after Berlin rebuffed the Government’s attempt to reopen the bank debt deal after the treaty referendum. It led the Opposition to call on the Government to intensify its push for a better banking deal.
Fianna Fáil called on Taoiseach Enda Kenny to adopt a stronger line in European talks and Sinn Féin said Spanish authorities had mounted a successful defence of their economic sovereignty. Mr Noonan dismissed Sinn Féin finance spokesman Pearse Doherty’s claim that Spain will pay less for its emergency loans than Ireland. “The funds will be provided through the EFSF/ESM at the same interest rates which apply to funds provided to other programme countries,” said Mr Noonan.
Minister of State for Finance Brian Hayes conceded the Government would have preferred another outcome. “Our view is that an EU-wide solution where banks could be recapitalised through emergency funding, without the debt then going on the national debt of the respective countries, would be the better way to go,” said Mr Hayes.
The likely loan package is much bigger than the €40 billion mooted as recently as last Friday.
“The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to €100 billion in total,” said euro zone ministers.
One of their biggest concerns is to provide certainty over the funding of the Spanish bank rescue before the Greek election rerun next Sunday. A strong showing for anti-bailout parties would call Greece’s euro membership into question, threatening renewed disruption on debt markets.
Spain’s banks suffered huge losses in a property crash similar to that in Ireland.
The country is the fourth to seek a euro zone bailout and a further rescue programme may soon be required to stabilise Cypriot banks.
“If we had not done what we’ve done in the past five months, what would have been on the table yesterday would have been an intervention in Spain,” said Mr Rajoy.