A full Spanish bailout – will they, wont they?

The European Central Bank
The European Central Bank

As speculation continues to surround the possibility of Spain requesting a full bailout from Europe, the struggling country has given no indication that any decision has been taken.

In an interview on Sunday Spain’s finance minister, Luis de Guindos, said Spain was “in no rush” to request further assistance from Europe and is safe to hold out until more details emerge about a possible European assistance program.

“When we know the details [of the aid program], we’ll have a more precise calendar,” said Sr. de Guindos.

Spanish Prime Minister Mariano Rajoy last week ‘opened the door’ to officially requesting a bailout from the euro-zone fund to help Spain out of the worst financial crisis it has seen.

Last week ECB President Mario Draghi increased the pressure on Spain when he said the ECB was ready to buy government-bonds if a government requests it as a means of support, under strict conditions. This was a mile away from his comments the previous week when he said the ECB was ready to do “whatever it takes” to save the Euro.

This is a u-turn for Mariano Rajoy’s government who have said, until recently, that they will not need a full sovereign bailout, and that the bank funding would be the only help requested, in the hope that the ECB would buy Spanish debt.

However, over recent days the government have had to concede that without intervention from the ECB the government could be left with no choice but to ask for aid.

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Germany backs Spain’s austerity measures

Wolfgang Schäuble - supports Spain's efforts
Wolfgang Schäuble – supports Spain’s efforts

Germany has lent it’s support to Spain’s reforms and austerity measures saying it is heading in the right direction, despite record borrowing costs, high unemployment, protests and spending cuts.

Following a meeting in Berlin the German finance minister, Wolfgang Schäuble, and the Spanish economy minister, Luis de Guindos, released a joint statement condemning the high interest rates being demanded for the sale of Spanish bonds as they failed to reflect “the fundamentals of the Spanish economy, its growth potential and the sustainability of its public debt”.

Despite this no new measures have been announced to stem the rise in borrowing costs or to prevent possible contagion to other eurozone members.

Both ministers commented that the €100 billion package intended to recapitalise Spain’s struggling banks was an important part of overcoming the confidence crisis in Spain, and across the eurozone. They said “decisive, swift and full implementation” of the plan was essential to restore confidence in Spain’s banking sector.

The ministers had praise for the incorporation of a “balanced budget rule” in the Spanish constitution, saying that it would contribute to “sustainable fiscal consolidation of the regions”.

While the meeting was taking place Spain was paying the second highest interest rate on short-term debt since the birth of the euro.

Also on Tuesday, ratings and research agency Moody’s changed the outlook on EU’s temporary bailout fund, the European Financial Stability Facility, to negative.

Spain on brink of full sovereign bailout

Spain's economy minister Luis de Guindos
Spain’s economy minister Luis de Guindos

Spain’s minister for the economy, Luis de Guindos, travels to Berlin today for talks with German finance minister Wolfgang Schaeuble, at a time when Spain’s borrowing costs are spiralling out of control and the prospect of a full sovereign bailout seems ever more likely.

The visit comes after Spanish stocks fell sharply on Monday following rumours that a number of regional governments are poised to ask Madrid for financial support. On Friday Spain’s IBEX index fell by almost 6% after Valencia announced it would seek financial support from the central government.

Spain’s regions need to refinance 36 billion euros worth of debt this year, after being locked out of the international debt markets by the euro zone debt crisis and rising borrowing costs. Earlier this month the central government announced that it had set up a fund of 18 billion euros to help its ailing regional governments.

A German spokeswoman said that the ministers would be discussing the current situation in Spain and would not be talking about a broader bailout for Spain.

“We believe that the reforms already begun by Spain will help calm the markets,” she said, adding that financing problems reported by Spain’s regions had “nothing to do with” an agreement to bail out Spain’s banks.

At the same time ratings agency Moody’s has downgraded its outlooks for the AAA-rated economies of Germany, the Netherlands and Luxembourg, citing the “rising uncertainty regarding the outcome of the euro area debt crisis”.

Please sir… I want some more!

Sr. de Guindos formally requested assistance
Sr. de Guindos has formally requested assistance

In a letter to the president of the Eurogroup, Jean-Claude Juncker, Spanish economy minister Luis de Guindos has formally requested assistance to recapitalise Spain’s financial institutions.

In the letter the minister said he wanted to accept the EU offer of up to 100 billion euros in capital to inject into the country’s banking sector.

“I have the honour to address you on behalf of the Government of Spain, to formally request financial assistance for the recapitalisation of the Spanish financial institutions that require it.” the letter said.

However, a specific sum was not mentioned as the minister said this was still under discussion but he hoped to have the details settled and the package finalised by July 9th.

Following two independent audits carried out over recent weeks Spain will carry out another stress test of its banks by October. This is intended to focus on seven lenders who do not currently requires help but who remain vulnerable.

This extra test will give Spain at least a couple of months to carry on negotiations for capital to be directed to the banks. The government wants to avoid taking the bailout itself and then channelling the money to the banks as this would affect public debt and could further increase the country’s borrowing costs worsening the crisis.

Spain’s Foreign Minister Jose Manuel Garcia-Margallo said Spain would insist on long maturities and low interest rates on the loans and that direct European aid to the banks was still an option.

“The way Spain complies with any and all of its commitments will be looked at with more attention than for a country which has not sought financial assistance,” said EU competition chief Joaquin Almunia yesterday.

Spain to officially request a bailout

Economy minister Luis de Guindos
Economy minister Luis de Guindos

Eurozone leaders are today expecting Spain to formally request up to 100 billion euros to recapitalise it’s banking sector.

Discussions are expected to take place this week to agree on the details of the bailout leading to a European Union summit on Thursday night in which EU leaders will address Spain’s sovereign debt crisis.

Spanish economy minister Luis de Guindos says the details of the loan will be agreed in a  memorandum of understanding which will be discussed by eurozone ministers in July.

Spain has seen it’s borrowing costs steadily increasing over recent months twice tipping over the 7% mark. On top of this Spain’s admission last week that it does require aid has made investors nervous and fuelled speculation that Spain would need a full rescue similar to that of Greece, Ireland and Portugal.

As part of the load agreement EU leaders are likely to insist on a total restructuring of Spain’s banking sector including the possible creation of a “bad bank” to house bad property debts, and the forced liquidation of insolvent institutions.

Further discussion is also expected on where the money will go. Some suggest the money should go not to Spain’s government but directly into the banks as the government already has a large deficit. However one worry surrounding that option is the lack of control Europe will have over how the money is spent.

“Contracts are made among countries, not banks,” said German chancellor Angela Merkel.

“We will discuss this at the European summit, and this possibility is absolutely open to Spain if there is progress in the next few months,” Luis de Guindos said in Luxembourg last week. “The process of recapitalisation is not instantaneous.”

ECB to assist Spanish bank audit

Luis de Guindos
Economy minister says Spain will not need EU help

The Spanish government has requested assistance from the European Central Bank (ECB) in the auditing of the accounts of Spanish banks saying they want to carry out the audit as soon as possible.

“The Spanish government has asked that the European Central Bank to be involved in this work of analysing the banks’ portfolios, and I believe that transparency is vital, and is a fundamental element to dispelling the doubts that exist about the Spanish banking system,” said Spanish economy minister Luis de Guindos as he entered the Ecofin meeting.

‘We have nothing to hide, we believe that the reforms we are carrying out will make the accounts more transparent, the Spanish government is very clear about that.”

The minister also pointed out that the government had already decided last Friday to ”appoint two independent auditors to analyse the portfolio of Spanish banks” adding that he is ”absolutely willing” to push the project through,  although he did not specify a completion date.

“It’s a job that will take time, but we will try to have it done in just under two months,” he said.

When asked whether Spain would ask for financial assistance from the EU De Guindos made assurances that this wont be neccessary.

“Nobody has spoken at all about going to the bailout fund, it is a matter of speeding up the independent evaluations”, he concluded.

Spain will survive the crisis

Spain will not only survive the crisis but will come out of it “strengthened”, according to Luis de Guindos, the Spanish Economy Minister.

“Spain is a country that has made mistakes in the past and accumulated imbalances. It is now in the process of correcting all these problems”, de Guindos said, talking to German newspaper Frankfurter Allgemeine.

He went on to say that “We will put our budgets in order. Our government, elected four months ago, has an absolute majority in parliament and a clear mandate for savings and reforms. With this we will succeed.”

In response to questions regarding the 25 billion euros in budget cuts recently announced he said that financial consolidation is inevitable, “The previous government left us with a deficit of 8.5% instead of the 6% forecast”.

“We must therefore make further efforts even in the midst of a recession, and we must restore confidence, especially in the Spanish economy. That means not only reaching a deficit of 5.3% this year, but 3% in the coming year. We are committed to that goal”, the minister explained.

De Guindos once again stated that “what we are doing is absolutely necessary. Spain currently has a funding problem. If the markets do not see consolidation then state funding could get more expensive. And that could lead to difficulties in the private sector also. Therefore it is essential to control the deficit.”

Although there were mixed reactions to the Spanish budget amongst EU members de Guindos is convinced that “the markets will react positively when they have studied our budgets in detail”.

Furthermore De Guindos recognises that 2012 will be a difficult year for Spain but “it will also be the year in which we will lay the foundations for recovery. The government is aware of this and does not want to raise false expectations for this year’s forecast. It will be hard with less growth and, unfortunately, more unemployment. But we will be laying the foundations for a better 2013.”

While recounting the first 100 days of the PP government de Guindos pointed out that he had approved a law of stability which “applies to all: central government, autonomous regions and municipalities,” and had approved labour market reforms which would “change the system largely responsible for high unemployment.”

“Therein lies the weakness of our economy,” said de Guindos referring to the countries huge unemployment figures which are likely to increase slightly this year before dropping in 2013.

De Guindos announced further steps to improve the struggling country including “reform of public services, especially health and education.”

He also mentioned reforms within the banking sector that “will get rid of the weakest” and will mean “a much healthier financial sector with fewer, but stronger, banks.”

Luis de Guindos “convinced” by labour reforms

Luis de Guindos
de Guindos is positive about reforms

Speaking at a banking seminar in Madrid, the Minister of Economy and Competitiveness, Luis de Guindos, said that if the government had implemented its labour reforms earlier there would be a million fewer unemployed. However, he also said that he had hopes that the reforms would generate “positive effects” on employment by the end of 2012 and would “moderate” negative developments seen in the market during the last quarter.

“The Government is convinced that the labour reform will have medium-term positive effects on employment at the end of this year”, de Guindos said at the meeting organised by El Pais and Bankia.

He also added that with the flexibility of the reforms, Spain could have “saved” a million people from unemployment.

He referred to the reforms as the most “wide-ranging, most substantial and decisive” reforms introduced in the last 20 years. “It lays the groundwork for an effective recuperation of employment,” he explained.

Sr. de Guindos went on to say that those who “have most” should show solidarity and “pitch in” to help achieve the objective of the adjustments. “The Government will continue asking those who have more to contribute more,” he told reporters.

Diario Sur reported that de Guindos made assurances that the Government’s reform agenda “does not end here”, mentioning a reform of the regulatory bodies. He also said the reforms for the approval of business licences for opening small shops would happen “shortly”.

The minister also hinted that the economy is heading to another recession, but expressed his confidence that there is “light at the end of the tunnel”.

“The banking reform will lay the foundation for the economy to create jobs again, 2012 will be a tough year, but it will pave the way for future growth,” he concluded.

Spain asks Brussels for easier target

According to reports, Spanish Prime Minister, Mariano Rajoy, has told European officials that the debt reduction target of 4.4% will be impossible to meet and has asked to raise the target to 5%.

Officials said Spain is likely log a deficit of 8% for 2011, two points above its target of 6%. In 2010 the figure soared to 9.3 percent.

Government sources say Spain’s savings and reforms will strengthen the economy, which is still suffering from the bursting of the real estate bubble in 2008. Some say the country will enter a new recession in this quarter after only recently recovering from the recession of 2010.

Today experts are expecting the European Commission (EC) to announce revisions to the eurozone growth forecasts following the implementation of spending cuts, tax increases and job losses across the member states.

Finance minister Luis de Guindos said that Spain’s request to lift its debt targets would not appear unusual because there is likely to be a “general reconsideration of targets across the whole of the EU”.

An official said that Spain and other countries may want to use the economic data to get their targets reduced but Brussels was “unlikely” to give in to requests for change so soon.

The ongoing crisis was evident over the weekend when Spain saw 1.5 million protesters across the country objecting to drastic labor reforms recently announced.

Eviction “code of practice” needed

Luis de Guindos
Economy Minister, Luis de Guindos

Economy Minister, Luis de Guindos has called for a “code of practice” to be drawn up for banks to help struggling home owners to stay in their home and reduce their debt.

Speaking in parliament today, Sr. de Guindos called for an end to the “human tragedy” caused when a family is evicted, effectively making them homeless.

“This situation is a human tragedy,” de Guindos said. “The government is very sensitive to the situation created by the large number of evictions which are affecting a large number of citizens.”

“What the government is going to try to do is protect a segment of the population, which because of the economic crisis and as a consequence of the errors of the past, may find itself in a very difficult situation,” de Guindos added.

The minister called for steps to be taken to allow defaulting home owners to write off their mortgage by handing the property back to the bank, sparing them from accumulating further debt.

The code will not be there as a get-out-of-jail-free card for everyone with debt problems. It will be there to provide help for families that fall under a definition of economic exclusion, which has yet to be defined. Those that will benefit are likely to be families in the lowest income bracket, or with no income, and with no additional assets.

Official figures show that nearly 43,000 evictions were carried out in the first nine months of 2011, just under 5,000 fewer than the total for the previous year, which was 47,800.

Over recent months campaign group PAH has staged a series of protests on the doorsteps of home owners awaiting eviction. In a statement the group said a code of conduct was not enough to protect families or provide assistance for those already evicted.

“We do not need recommendations but legislation that guarantees that citizen’s fundamental rights will be protected,” the statement said. It also went on to say that appealing to the good will of the banks with a “voluntary” code would not work because these are companies whose only reason to exist is to get maximum profit from it’s customers.

Luis de Guindos is a former Lehman Brothers executive, appointed by Mariano Rajoy, so I have to wonder how on earth he managed to get a job as a government minister in a country still suffering from the damage Lehman Brothers caused.