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Jun 10th 2012, 19:30 by F.M.-B. and G.T. | MADRID
WHATEVER the 100 billion ($126 billion) made available by euro-zone countries
to recapitalise Spain's banks looks like, the Spanish government would really
rather not call it that. "In no way is this a rescue," said Luis de Guindos,
Spain's economy minister, while announcing that a deal to rescue Spain's banks
had been done in a two-and-a-half-hour conference call with the 17 euro-zone
finance ministers on June 9th. "It's a loan with very favourable conditions."
The prime minister, Mariano Rajoy (pictured above), who left his underling to
front the bail-out, was meanwhile busy giving the impression that all was
proceeding as normal. When he eventually appeared before the press the
following day, Mr Rajoy made repeated reference to "what happened yesterday",
as if the rescue were an embarrassing incident that, out of politeness, ought
not to be mentioned by name. Then he flew to Poland to watch some football.
This was understandable, given the importance of confidence to banking, if
slightly comical. Yet it was also emblematic of Spain's approach to its banking
crisis, characterised by a mixture of bluster and denial that has ultimately
proved to be self-defeating. The good news is that this loan signals that the
country is at last facing up to the problems in its banking sector. A hundred
billion euros is at the high end of what most analysts estimate is required and
should be enough to protect Spanish banks against further shocks.
The government said it would specify how much money the banks needed after it
received an assessment from two independent consultancies, Oliver Wyman and
Roland Berger, due by June 21st. The loan amount is more than double the 40
billion capital hole identified late on June 8th by a report from the
International Monetary Fund, though the IMF had warned Spain would need an
additional buffer on top of this amount. Last week Fitch, a rating agency, said
Spanish banks might require 50 to 60 billion in fresh capital, or up to 100
billion if things became really bad. The government needs to request enough
money to persuade markets that it will not underestimate needs for a third time
as it did with provisioning orders totalling over 80 billion in February and
May, which have proved insufficient.
The bail-out will be channelled through the state-backed bank bail-out fund,
the FROB (Fund for Orderly Bank Restructuring), and so will count as sovereign
debt. If used in total, it would add about 10% of GDP to Spain's debt burden.
Even then, the debt to GDP would probably peak at below 100% in 2015. This is
still less than other highly indebted countries in the euro zone.
Yet several details of the bail-out are still fuzzy. First, it is not clear
exactly what conditions would be attached to the aid. The government claimed
there were no conditions for the rest of the economy. Other European ministers
might disagree. The Eurogroup praised Spanish reforms but said it would also be
monitoring deficit procedure and structural reform carefully. "Progress in
these areas will be closely and regularly reviewed also in parallel with the
financial assistance," in their words. The Eurogroup also mentioned "horizontal
structural reforms of the domestic financial sector", which could mean
something.
Second, the Eurogroup did not specify whether Spain would be borrowing from the
existing rescue fund (the European Financial Stability Facility or EFSF) or
from the new European Stability Mechanism which is due to start in July. This
matters because loans from the EFSF are not senior to other bondholders,
whereas the ESM loans do have priority over privately held debt. A loan from
the latter could spook investors in Spanish sovereign bonds.
How will the bail-out affect Spain's ability to borrow in the markets? Cleaning
up the banking system would be a positive step but it is not enough on its own.
The country's economy is expected to shrink this year and the next. The bank
bail-out is unlikely to reverse the downward momentum, even if it eases the
country's credit crunch. If Greece leaves the euro, it is possible that Spain
will find itself shut out of the markets.