A breathing space for Spain
THE EURO ZONE finance ministers’ decision to lend up to €100 billion to shore up Spain’s ailing banks has bought a little time, both for the zone as a whole and for its fourth-largest economy. For this relief we must be grateful. But while the Spanish stock market surged yesterday in response, a brief easing of Spanish sovereign bond yields reversed within hours.
Indeed the loan in itself has not “resolved” anything for the European project, the euro zone, the Spanish sovereign, or even the Spanish banks, despite bold claims to the contrary on all four counts by Spanish prime minister Mariano Rajoy on Sunday. Rajoy insists that this support is not a “bailout”, but simply a “line of credit”.
Technically, he has a point. Unlike the bailouts to Greece, Portugal and Ireland, the IMF is not involved, though it has voiced its approval.
More critically, no policy programme is being imposed directly on the Spanish government as a condition for credit. To that extent, Spanish sovereignty remains formally intact. But the underlying realities tell a different story. The euro zone group is not making the loan directly to Spanish banks, but to a state agency responsible for restructuring the sector. The Spanish state, and ultimately the Spanish taxpayer, must repay it. This deal is, unfortunately, no model for relieving the burden of Irish bank debt on our citizens.
Meanwhile, the German finance minister, Wolfgang Schäuble, made it clear that Spain would have to present a bank restructuring plan to the European Commission and the ECB for approval, before any payments are made. Rajoy may legitimately claim some credit for having staved off a full-scale bailout of a key euro zone economy. However, his attempt to present the deal as some kind of personal triumph, and a reward for his already severe austerity programme, has infuriated the opposition, and many of his hard-pressed fellow citizens.
The prime minister’s curious mixture of phlegm and bravado has also puzzled European colleagues. Having stolidly denied for months that the Spanish banks needed public money, Rajoy has veered over the last few weeks to the costly nationalisation of Bankia, Spain’s fourth-largest bank. Now he has sought this massive injection of euro zone capital. The question that arises is whether this funding package will be enough to restore liquidity, stimulate investment and calm the markets.
On the face of it, it should be. The IMF estimated only last Friday that €40 billion, less than half the new credit limit, would cover Spanish banking debt. At present, too, Spain’s largest banks, the Santander and the BBV, seem not only sound but profitable. And there are other positives: Spain’s public debt and current deficit both meet good EU standards.
The fear remains, however, that more black holes may emerge in its troubled savings banks, and above all that the indebtedness of Spain’s regional autonomous governments may be much higher than acknowledged. Either factor is enough to keep markets nervous. This weekend’s developments yield a breathing space, but have not ended the Spanish race against collapse.