Spanish banks to receive loans. European financial union born?

Date: Saturday 09 Jun 2012

Following approximately three hours of teleconference between the Eurozone´s finance ministers it has been agreed that Spain will issue a formal petition (before the next 21st of June by some accounts) for loans to its Euro partners, once the results of three independent sets of audits of its financial system are known.

Spain may receive access to up to €100bn ($125bn; £80bn) which are to be channeled through its own bank rescue facility, the so-called FROB.

The country´s Economy Minister, Luis de Guindos, emphasized that the funds are for the financial system, not Spain. That is to say, this is not a rescue of the Iberian nation per se.

Nonetheless, it has also been agreed that the Spanish government will retain full responsibility for the financial assistance.

At first glance the most important, immediate and direct implications of all of the above seem to be three.

1. Perhaps most importantly for the long-term, and as the US Secretary of the Treasury Timothy Geithner has pointed out, this is, “important for the health of Spain's economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area.”

2. Linked to the above, the aid received by the banks will not count towards the tally of Spain´s national debt. The aim here is to break the vicious circle which has taken hold between sovereign and bank risk.

3. As it is the banks which are receiving the aid, Spain will not be asked to carry out further macro-economic reforms as part of any ‘conditionality’; although by some accounts the country has already carried out a heavy agenda in this regard. Nonetheless, conditionality will be applied to those financial institutions which apply for funds.

Lastly, a team comprising staff from the European Commission, the European Central Bank and the International Monetary Fund will head to Madrid to assess the needs of the Spanish banking sector, a Eurogroup spokesman confirmed to the BBC.

It is said that responsibility for a second audit of the banks is expected to be encharged to the main private international consulting groups, Deloitte, KPMG, PwC and Ernst&Young.

The third and final audit, already under way, is expected by the end of the month from consultancies Oliver Wyman and Roland Berger.

AB

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