11 June 2012

FT: Rajoy presents Spain bailout as victory

Mariano Rajoy attempted to portray his country's decision to seek as much as €100 billion in EU rescue funds for troubled domestic banks as a victory, saying his government's budget prudence had prevented a full-scale bailout that would have forced him to surrender sovereignty to Brussels.

Spain has now became the fourth and largest eurozone economy to seek an international bailout. But Mr Rajoy, who had resisted any outside EU assistance since his centre-right government was voted into office in December, insisted the agreed loan from EU funds was solely to recapitalise banks.

Luis de Guindos, Spain’s economy minister, said on June 9 that “the government of Spain declares its intention to request European financing” for its banking system. That announcement followed an emergency 2½-hour conference call between eurozone finance ministers. The 17 euro members agreed to channel the credit through Spain’s Fund for Orderly Bank Restructuring (FROB), which would then inject capital into banks struggling with bad property loans.

Olli Rehn, the EU’s top economic official, made clear that it would be the European Commission and other international experts, and not the Spanish government, that would decide how much Spain’s banks need. In addition, the Commission is expected to impose tough new measures on Spain’s financial sector overhaul, which some officials believe has gone too slowly and only contributed to market uncertainly. “Spain has been the epicentre of the market turbulence recently”, Mr Rehn said.

Mr Rajoy expressed regret that Spain had not bailed out its struggling domestic banks three years ago along with other European Union members such as the UK, but said the credit line was essential to restore confidence and help banks provide credit to the real economy.

Economists and analysts say the EU loan amounts to a rescue for Spain because the money will go to the FROB, will count as government debt, and was necessary only because Spain itself could not access the sovereign bond markets at a reasonable price.

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