Spain To Get 100 Billion To Recapitalize BanksJune 10, 2012 @ 11:14 AM EST
As had been speculated late last week, Spain formally asked the EU finance ministers for financial assistance on Saturday in order to shore up badly needed capital for the nation’s struggling banks.
Economy Minister Luis de Guindos said at a news conference in Madrid, "The Spanish government declares its intention to request European financing for the recapitalization of the Spanish banks that need it."
It is reported that a formal request for aid will be forthcoming this week.
After a two and one-half hour conference call that, according to Reuters was “heated,” the finance ministers from the 17-nation EU agreed to provide Spain with enough funding to “banish any doubts” about the capitalization of Spanish banks.
The exact amount of the of the recapitalization loan, which will come from the Eurozone’s EFSF and ESM bailout funds, was not specified and will be determined after an independent review of Spain’s bank within the next week. The funds will be funneled through Spain’s F.R.O.B. (Fund for Orderly Banks Restructuring). As such, the Spanish government will retain the ultimate responsibility for the loans for the restructuring of the banks.
According to the statement released by EU finance ministers, "The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to €100 billion in total."
The Eurogroup statement makes it clear that the loans are to be used to aid the ailing financial sector. "Beyond the determined implementation of these commitments, the Eurogroup considers that the policy conditionality of the financial assistance should be focused on specific reforms targeting the financial sector, including restructuring plans in line with EU state-aid rules and horizontal structural reforms of the domestic financial sector."
Spain’s request for bailout funds marks the fourth country in the EU to formally request bailout loans after Greece, Ireland, and Portugal. Reports indicate that the EU and IMF have now committed €500 billion in bailout loans.
One of the keys to this latest bailout is that Spain is not being forced to implement the same level of fiscal austerity that has been imposed on Greece, Ireland, and Portugal. Thus, it is little surprise that these three countries want to now renegotiate the terms of their reforms.
According to the AFP, "Ireland wants to renegotiate its rescue plan to benefit from the same treatment as Spain, which looks set to win a bailout for its banks without any broader economic reforms in return, European sources said on Saturday."
The Eurogroup statement on the Spain bailout appears to suggest that Spain has already implemented sufficient reforms. According to the statement released, “The Eurogroup notes that Spain has already implemented significant fiscal and labour market reforms and measures to strengthen the capital base of the Spanish banks. The Eurogroup is confident that Spain will honour its commitments under the excessive deficit procedure and with regard to structural reforms, with a view to correcting macroeconomic imbalances in the framework of the European semester. Progress in these areas will be closely and regularly reviewed also in parallel with the financial assistance.”
However, the general consensus is that Spain is being treated differently. Thus, the question now becomes one of how the treatment of Spain will affect the Greek elections slated for one week from today. Recall that the Syriza party is running on the premise that it will not support the current bailout package the Greek government has agreed to and will instead renegotiate the deal.
The bottom line is it appears the saga that is the European Debt Crisis will continue for some time.
Other stories on Europe to review:
Spanish Banks Will Need at Least 40 Billion
EU Says No Bank Rescue Plan for Spain in Works
ECB Leaves Rates Unchanged; Keeps Hope for Action Alive
Germany's Industrial Production Falls
Report: EFSF Preparing Credit Line for Spain
Spain Admits There is a Problem, Urges Assistance
G-7 Emergency Call Produces Little, Not Statement to be Issued
Eurozone Services PMI Show Contraction Continues
Is Germany Softening Stance on Eurobonds?
- Eurozone Confidence Declines
Wondering what our short-term trading strategy is at the present time? Take a Free Trial of the All-NEW Daily Decision (the new “adaptive” system is now more active and more sensitive to trend changes) to find out. Even if you've taken a free trial of the Daily Decision in the past, you owe it to yourself to check out the new system.
To learn more about our NEW “Adaptive” Daily Decision System (a 100% rules-based system designed to guide your market moves) Download our Special Report on the New "Adaptive" Daily Decision System