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29 May 2012

FT: ECB rejects Madrid plan to boost Bankia


A Spanish plan to recapitalise Bankia by indirectly tapping the European Central Bank for cash was bluntly rejected as unacceptable by the ECB, European officials said.

News of the rejection came as Spain faces elevated borrowing costs in the bond markets, tries to persuade investors it can contain problems in a banking sector weighed down by €180 billion of bad property loans, and saw its central bank governor stand down early.

News of the ECB’s hardline response emerged as the Bank of Spain announced that Miguel Angel Fernández Ordóñez, its governor, would step down at the end of next week, a month earlier than planned. Mr Fernández Ordóñez has been subject to increasing attacks from politicians over his failure to prevent the country’s banking crisis. The ECB’s rebuff appeared to toughen Madrid’s insistence that the only solution to a crisis that is pushing its borrowing costs close to unsustainable levels is for the ECB to become a government lender of last resort.

Senior government officials in Madrid argue that bailouts in Portugal, Greece and Ireland have been catastrophic and Spain will not compromise on its refusal to accept a similar form of intervention.

They said the country had implemented reforms requested by Brussels and must now be granted relief by the ECB, or the future of the single currency will be threatened. The government would like to see the ECB restart its government bond-buying programme, and wants the nascent European Stability Mechanism to be retooled as a bank bailout fund.

Full article (FT subscription required)



© Financial Times


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