Spain calls for bank aid
Things are on the move in Spain although nothing is set in stone yet.
Treasury minister Montoro’s call yesterday for “European mechanisms” to be involved in the recapitalization of Spain’s debt-laden banks – a reversal of Madrid’s previous insistence that it could sort its banks alone – unleashed a barrage of whispers in Europe’s corridors of powers.
Our sources say that the independent of audit of Spanish banks’ capital needs, the first phase of which is due by the end of the month, will be a key moment after which things could move quickly.
The hitch is that Madrid still doesn’t want the humiliation of asking for a bailout and Germany will not countenance the bloc’s rescue funds lending to banks direct. One possible solution floated last night – the EFSF or ESM bailout funds could lend to Spain’s FROB bank rescue fund, which could be viewed as tantamount to lending to the state but would give the government some political cover to say it wasn’t asking for the money. This is anything but a done deal and there would still be some strings attached which could be tough for Prime Mininster Mariano Rajoy to swallow.
Madrid has pressed for the ESM to be allowed to lend to banks direct but Berlin is opposed and even if it was agreed it would probably require another time-consuming round of euro zone parliamentary ratification. However, although the legal situation is murky it is possible that the ESM could lend to the FROB without its mandate officially having to be changed.
Today Spanish Economy Minister de Guindos meets his French counterpart Moscovici in Paris.
Montoro startlingly ratcheted up the rhetoric yesterday saying Spain was effectively shut out of the bond market, amazing timing given there’s a Spanish bond auction on Thursday.
The big setpiece today is the ECB’s monthly policy meeting and despite an absence of action or even statement of intent from yesterday’s G7 conference call, German Bund futures are lower and European stocks are up nearly 1.0 percent just in case central bank action is in the offing.
They are likely to be disappointed today. The ECB’s new forecasts will doubtless predict a sharper downturn for the euro zone than previously but everything we hear tells us that it will wait until the June 17 Greek elections and end-of-month EU summit are out of the way before considering any action.
That summit will show EU leaders have got serious about a drive towards an economic union that would make the currency project durable but that is a long, long-term project. Merkel called last night for measures to free up labour mobility around Europe, so skills shortages in one area (Germany I guess) could be matched against high unemployment in another.
If and when the ECB does move, a rate cut and third round of three-year money creation look more likely than a revival of its government bond-buying programme. Coordinated action looks even less likely with two Fed governors yesterday saying the U.S. central bank was not preparing to ease policy later this month.