Spain Holds a Trump Card in Bank Bailout Negotiations
Daniel Ochoa de Olza/Associated Press
In Madrid, a “victim of the
crisis.” Spanish leaders want a deal that requires only a tightening of
oversight on the financial sector.
By NICHOLAS KULISH and RAPHAEL MINDER
Published: June 6, 2012
-
Spanish Bond Auction Succeeds Under Intense Scrutiny (June 8, 2012)
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Central Bank Leaves Rate Alone, Putting Pressure on Europe’s Leaders (June 7, 2012)
Times Topic: European Debt Crisis
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The question has seemingly become one of when, and not if, Spain’s banks
will receive assistance from European countries, with investors on
Wednesday predicting an imminent rescue and pushing up stocks and bonds
on both sides of the Atlantic.
Spain, the euro zone’s fourth-largest economy, is too big to fail and
possibly too big to steamroll, changing the balance of power in
negotiations over a bailout. Political leaders in Madrid are insisting
that emergency aid to their banks avoid the stigma in capital markets
that has hobbled countries like Greece, Portugal and Ireland after
accepting tough rescue terms. They are also fighting to slow the pace of
austerity and economic change that have pushed those smaller countries
into deeper recessions.
Spain has the added advantage of seeking help in a changed political
environment in which calls for growth have begun to outweigh German
insistence on austerity. Unlike Greece, Spain’s government did not run
large budget deficits before the crisis, giving it leverage to argue
that European aid to its banks should not come weighed down with a
politically delicate loss of decision-making power over its own economic
and fiscal policies.
Madrid’s trump card in this latest game of euro-zone poker is that the
consequences of a Spanish default and exit from the euro zone would
probably be so catastrophic that policy makers in Berlin will be willing
to bend their bailout rules for Spain, and are on the verge of doing
just that.
German officials have said they are prepared to weather a Greek exit from the euro
if necessary, but no such claims are made about Spain. As such, Spanish
leaders, who feel Madrid has already made many painful changes and
spending cuts, are holding out for a deal that requires only a
tightening of oversight on the financial sector and no strings attached
to the country’s budget powers.
Spain also appears to be forcing a reckoning about the expensive steps
political leaders in Europe need to take if they want to hold the euro
zone together. Hopes that the European Central Bank
would ride to the rescue, as it did with two waves of generous loans to
Europe’s banks in December and March, or at the very least cut interest
rates, now at 1 percent, were dashed when the bank’s president, Mario Draghi,
said Wednesday that he did not “think it would be right for monetary
policy to fill other institutions’ lack of action.”
“Some of these problems in the euro area have nothing to do with
monetary policy,” Mr. Draghi said at a news conference, his message to
European leaders boiled down to: “Your problem, not mine.”
The wrangling over Spain underlines the way the European Union stumbles
to solutions for each problem as it arises. Frustration has grown over
the uncertainty afflicting the global economy as a result of Europe’s
instability and the toll it takes on an already slowing growth rate.
“The strategy of plugging holes only works for so long,” said Friedrich
Mostböck, chief economist and head of research for the Erste Group in
Vienna. “Eventually, you come to the point where a common euro area
requires a common fiscal policy.”
Prime Minister Mariano Rajoy of Spain has made clear that he intends to
draw a distinction between Spain, which has a lower level of debt as a
percentage of gross domestic product even than Germany, and Greece,
which has given up a great deal of its fiscal sovereignty to lenders in
exchange for assistance.
For Spain, a bailout is more than a matter of pride and sovereignty.
“The experience of Ireland, Portugal and Greece is that it diminished
their access to commercial markets,” said John Chambers, managing
director and chairman of the sovereign rating committee at Standard
& Poor’s. “Spain doesn’t want to go that route.”
The Spanish economy minister, Luis de Guindos, made a surprise visit to
Brussels on Wednesday to meet with the European commissioner in charge
of competition, Joaquín Almunia, a fellow Spaniard, followed by a trip
to Paris to meet with Pierre Moscovici, France’s finance minister. That
fueled speculation that Madrid was laying the groundwork to formally
request help sooner rather than later.
Because Spain has already made many painful changes and spending cuts,
officials in Brussels and Berlin are much more open to a bailout that
mostly imposes conditions and oversight on the financial sector in
Spain.
Yet, as recently as Tuesday, Spain’s budget minister told Spanish radio that the financial markets were closed to Spain. The mixed signals coming from Spanish officials seemed to reflect an odd balancing act — trying to reap the advantages of sounding alarmed, but not so desperate that they signal a willingness to let European officials dictate harsh terms and conditions.
Mr. de Guindos has spent this week shuttling between European capitals
to secure some sort of rescue package for Spain’s troubled banks. The
list starts with Bankia, which was nationalized in early May and needs
$24 billion of additional funds after restating its accounts, to a 2011
loss of almost $3.75 billion rather than the $388 million profit it had
reported in February.
German officials have been privately pressing the Spaniards to take a
bailout. On Tuesday, Volker Kauder, the head of Chancellor Angela Merkel’s
Christian Democrats in Parliament, said that Spain “has to seek a
rescue.” But as long as Brussels and Berlin believe aid is necessary,
Spain retains bargaining power — the chance that it self-destructs
implicitly holds the rest of Europe hostage until they agree to terms.
One crucial issue is whether emergency lending would be made directly to
Spanish banks. That is a line in the sand for German officials, who
argue that under Europe’s hybrid structure, banks are the responsibility
of their sovereign governments, not the European collective.
But making emergency loans to the Spanish government to rescue its own
banks, as European lenders did for Ireland, presents other problems,
because it would increase government debt and impair Spain’s ability to
sell bonds.
The German newspaper Süddeutsche Zeitung reported Wednesday that
officials here were examining a possible compromise under which rescue
funds were paid directly to Spain’s Fund for Orderly Bank Restructuring,
known as FROB.
Should Berlin agree to a rescue package with limited conditions, it
would allow Mr. Rajoy to save face, after repeatedly pledging that Spain
would not request a Greek-style bailout.
The ultimate solution will hinge on Germany and how much its leaders are
willing to bend. Berlin has an incentive to get the Spanish problem
under control before Greek parliamentary elections on June 17, to help
contain contagion in the event of instability after the vote, said
Holger Schmieding, chief economist at Berenberg Bank.
“I’m naïvely optimistic that it would be good to have the Spanish
problem solved before the Greek election,” he said, “and my impression
is the relevant policy makers think the same.”
Nicholas Kulish reported from Berlin, and Raphael Minder from Paris.
Jack Ewing contributed reporting from Frankfurt, Paul Geitner from
Brussels, and David Jolly from Paris.
copiado : http://global.nytimes.com/
Yet, as recently as Tuesday, Spain’s budget minister told Spanish radio
that the financial markets were closed to Spain. The mixed signals
coming from Spanish officials seemed to reflect an odd balancing act —
trying to reap the advantages of sounding alarmed, but not so desperate
that they signal a willingness to let European officials dictate harsh
terms and conditions.
Mr. de Guindos has spent this week shuttling between European capitals
to secure some sort of rescue package for Spain’s troubled banks. The
list starts with Bankia, which was nationalized in early May and needs
$24 billion of additional funds after restating its accounts, to a 2011
loss of almost $3.75 billion rather than the $388 million profit it had
reported in February.
German officials have been privately pressing the Spaniards to take a
bailout. On Tuesday, Volker Kauder, the head of Chancellor Angela Merkel’s
Christian Democrats in Parliament, said that Spain “has to seek a
rescue.” But as long as Brussels and Berlin believe aid is necessary,
Spain retains bargaining power — the chance that it self-destructs
implicitly holds the rest of Europe hostage until they agree to terms.
One crucial issue is whether emergency lending would be made directly to
Spanish banks. That is a line in the sand for German officials, who
argue that under Europe’s hybrid structure, banks are the responsibility
of their sovereign governments, not the European collective.
But making emergency loans to the Spanish government to rescue its own
banks, as European lenders did for Ireland, presents other problems,
because it would increase government debt and impair Spain’s ability to
sell bonds.
The German newspaper Süddeutsche Zeitung reported Wednesday that
officials here were examining a possible compromise under which rescue
funds were paid directly to Spain’s Fund for Orderly Bank Restructuring,
known as FROB.
Should Berlin agree to a rescue package with limited conditions, it
would allow Mr. Rajoy to save face, after repeatedly pledging that Spain
would not request a Greek-style bailout.
The ultimate solution will hinge on Germany and how much its leaders are
willing to bend. Berlin has an incentive to get the Spanish problem
under control before Greek parliamentary elections on June 17, to help
contain contagion in the event of instability after the vote, said
Holger Schmieding, chief economist at Berenberg Bank.
“I’m naïvely optimistic that it would be good to have the Spanish
problem solved before the Greek election,” he said, “and my impression
is the relevant policy makers think the same.”
copiado : http://global.nytimes.com/
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