Spain sought to dispel talk that any rescue plan for its banks is imminent, with Finance Minister Luis de Guindos saying that a review of the banking sector’s needs would show problems are limited even as the European Commission said emergency policy measures may be needed to tackle problems in the country’s lenders.
He said an immediate rescue for Spanish banks hadn’t been discussed, a comment that comes after Budget Minister Cristóbal Montoro called this week for help from “European institutions” for Spanish banks and warned that the country was effectively losing access to the markets.
Still, in a sign pressure is mounting on Spain to fix its banking problem, European Internal Markets Commissioner Michel Barnier in Brussels said that emergency policy measures may be needed to deal with Spain’s banks. He said itIn comments made at a news conference to launch a commission proposal on bank rescues and resolution schemes,Mr. Barnier said the commission is trying to work on both long-term change and immediate challenges. He added that is important to “take the necessary measures that are urgently needed in order to address specific problems in different countries such as Greece” and to “adopt emergency policy measures where required, for example, in Spain, given certain banking difficulties.”
The discussion about a potential rescue for Spain’s banks intensifies at a key juncture for the country as the government needs to recapitalize nationalized lender Bankia SA even as its own borrowing costs remain at steep levels.
The government is to auction between €1 billion and €2 billion ($1.25 billion and $2.5 billion) of bonds Thursday, and is hosting a team of international monetary experts who are assessing the health of its financial sector. Their report will be presented to the International Monetary Fund’s board Friday and is expected to be released Monday, with the focus on any estimates of funding needs under the “extreme stress” scenario for the banks.
Spanish Finance Minister Luis de Guindos
Meanwhile, a debate is building within the euro zone over whether troubled banks should be allowed to directly access the region’s bailout funds for assistance.
At the moment, the bailout funds can lend only to governments that lend on to banks.
Mr. Barnier said it is important to break the link between banks and the problems of national governments.
This could be achieved by allowing the region’s permanent bailout fund—the European Stability Mechanism—to directly recapitalize banks, spreading the cost across the common currency zone.
French Finance Minister Pierre Moscovici also said Wednesday that he favors using the European Union’s two bailout facilities—the ESM and the European Financial Stability Facility—to directly recapitalize banks, adding that Spain’s finance minister shares this view.
But Germany, which has firmly resisted such a plan, reiterated its opposition Wednesday. German government spokesman Steffen Seibert said during a government news conference that “only states,” meaning governments, can tap the funds, and they must be liable for the loans. Officials in Berlin argue that such a move would weaken Europe’s leverage over governments to put their finances in order.
Lending directly to banks would be a departure that would require the approval of all euro-zone governments, and possibly changes to European treaties.
On Tuesday, Spain made its most explicit suggestion yet that it would seek help from Europe for its struggling banks, as the country’s budget minister said high interest rates on Spanish bonds were a signal the government risks losing access to financial markets.
The crisis in Spain, the euro zone’s fourth-largest economy, which is widely considered too big to bail out, is seen in financial markets as the acid test for the survival of the euro. Spain’s troubles—unlike those of Greece, whose economy is one-fifth the size—can’t be blamed on reckless government spending, but instead on a burst real-estate bubble.
Mr. De Guindos, who was in Brussels for meetings with European officials, said a broader roadmap for the country’s financial sector was being prepared within the EU that would include options to recapitalize banks.
“There has been no [talk] of rescuing [Spanish banks],” Mr. De Guindos told reporters following a meeting in the European Parliament in Brussels. “There’s a clear roadmap for the financial system [in Europe].”
Mr. De Guindos added that the IMF report will show that problems are limited to “certain entities” in Spain’s financial system. He also stressed that two further separate audits of the country’s banking sector, which are to be finalized within a fortnight, will help Madrid “take the decisions it has to take, obviously [regarding] the recapitalization of institutions.”
The European Commission also confirmed Wednesday that it has received no request for support from Spain but expects to have more clarity about the state of the country’s banks later this month.
“We have not received any request from Spanish authorities for aid,” Amadeu Altafaj Tardio, spokesman for Economics Commissioner Olli Rehn, told reporters.
“That’s perfectly logical, as we do not know how large any need for recapitalization might be,” nor what steps the Spanish government will take.
Spain’s efforts to shore up its frail banking sector are also being complicated by a worsening economic outlook.
Spain’s national statistics institute said industrial output fell at the fastest pace in over two years in April, an indication that the euro zone’s fourth-largest economy may see a deepened economic contraction this quarter.
According to official data, industrial production fell 8.3% in a calendar-adjusted annual rate in April, a more severe drop compared with March’s 7.5% fall.
April’s is the worst reading since October 2009, when industrial output fell 9.1% at a time when Spain’s economy was in the middle of a severe economic recession right after the start of the country’s property bust, which is continuing. In 2009, the economy ended up contracting by 3.7%.
INE said the biggest contributor to April’s reading was a 15% annual fall in capital equipment, in particular that used for the production of metal goods and cars–both key components in Spain’s export sector, the sole bright spot in Spain’s economy in recent quarters.