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First Spanish bailout begins to take shape [ClearOnMoney]
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First Spanish bailout begins to take shape

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Commentary

First Spanish bailout begins to take shape

8 Jun 2012 by Jim Fickett.

It looks as if the European Financial Stability Fund will be used to bail out Spanish banks, indirectly. The aid will come through the national government so that they, in the end, will be on the hook for repayment. This is unlikely to be the end of the story. The current pretense, on the parts of both Spain and the EU, is that the problem is limited to the banks. That pretense is based on a narrow view of only central government finances, but the most intractable debt and deficit issues are in the regional governments.

Here is the Financial Times on the current situation:

Spanish officials insist they need money only for bank recapitalisation, which they say requires much less than the €100bn calculated by some analysts, and hope to secure EU aid without a full bailout programme involving harsh conditions and oversight by the “troika” of the IMF, the European Commission and the European Central Bank. …

Ms Sáenz de Santamaría said Spain would wait for an assessment of the financial sector by the IMF and two separate investigations by consultants Oliver Wyman and Roland Berger into the capital needs of Spanish banks, expected by June 21 at the latest. …

However, senior EU officials said Spain was expected to request a bailout in principle. Aid for Spain is expected to take advantage of new powers given to the eurozone’s €440bn rescue fund last year that allows loans to be funnelled through government coffers and into struggling banks.

The so-called “recapitalisation tool” allows Madrid to accept aid from the bailout fund, the European Financial Stability Facility, without the full-scale economic overhaul and intrusive fiscal monitoring that Ireland, Portugal and Greece have been forced into through their bailouts.

“The request for and control of this instrument needs to be ‘lighter’ than in the case of a regular programme in order to increase the speed of funding as well as to reflect the sectorial nature of the loan,” the EFSF guidelines state. …

Germany has resisted direct capital injections and the EFSF guidelines explicitly require any bank assistance to go first through the Spanish government, which is ultimately responsible for paying them off if the banks default.

“This loan will be channelled through the national authorities, which ultimately bear the liability of the loan,” the EFSF regulations state.