–Spain Bank Aid A One-Off On Madrid Books, EU To Take That Into Account
PARIS (MNI) – Losses incurred by the Spanish government in
financing the country’s troubled banks are a one-time phenomenon rather
than part of the structural deficit, and the European Commission will
take that into account when deciding whether Madrid is adhering
to its fiscal targets, Olli Rehn, the Commission’s Vice President for
Economic and Monetary Affairs, said Monday.
Rehn said Madrid’s deficit targets – 6.3% of GDP this year and 4.5%
in 2013 – are “realistic,” and that the government can achieve them.
He was speaking at a press conference with Spain’s Economy Minister
Luis de Guindos after a round of meetings in Madrid with de Guindos,
Prime Minister Mariano Rajoy and officials from the Bank of Spain.
Rehn’s comments follow an announcement by Madrid on Saturday that
if its capital injections into the banking system are calculated in the
deficit numbers, the shortfall would rise to 7.4% of GDP this year, more
than a full percentage point above the target. Last year’s deficit ratio
would rise to 9.44% from the previously reported 8.96%.
Rehn said the Commission was studying the issue, along with Spain’s
entire 2013 budget, which was unveiled in stages on Thursday and
Saturday. “I wouldn’t want to make any premature comments,” he said.
Rehn dodged questions about whether he thought Spain would or
should apply for an aid package with the European Stability Mechanism,
in order to qualify for the European Central Bank’s new bond purchasing
program. He simply noted that “there is no request for aid” from Spain,
but then added that the Commission “is ready and prepared to respond
whenever there is such a request from any country.”
He also declined to predict how long Spain could tolerate borrowing
costs at their current levels. “I’m not clairvoyant,” he said.
Rather than be drawn into a discussion about a possible aid program
for Spain, Rehn stressed that Madrid must continue down the path of
reform, shoring up its enfeebled banking sector, consolidating its
public finances and implementing key economic reforms, including in the
labor market.
With the bank stress test results published on Friday and the plan
to inject recapitalization aid into the country’s financial institutions
on a bank-by-bank basis, Spain is ensuring that it will remain “on the
right path,” Rehn said.
The stress tests, conducted by Oliver Wyman, an independent
auditor, showed that seven of fourteen banks examined required
additional capital totaling an aggregate E59.3 billion.
De Guindos, sitting at Rehn’s side, said the tests brought
transparency to the Spanish banking sector and would “shed light” on the
extent of its problems. “The Spanish banking sector is solvent and will
be in a position to begin lending again once the [economic recovery]
starts,” he said.
De Guindos, weighing in on a controversy that erupted last week,
said Madrid supported allowing the ESM to recapitalize banks directly.
But he said the support was intended not in the short-term interests of
Spanish banks but in the longer-term interest of greater financial
integration for the whole euro area.
“A banking union is indispensable for the euro’s future,” de
Guindos said, asserting that all of Madrid’s decisions are taken with an
eye towards the monetary union’s future.
De Guindos said Spain must continue to cut its deficits,
restructure its banking system and reform its economies. It will require
“difficult measures” and “sacrifice” on the part of Spaniards, he said.
Rehn said he was aware of how “difficult and painful” Spain’s
current path is, but he argued it would only be worse if Madrid put off
the hard decisions.
In what might have been a veiled criticism of the Spanish
government’s decision not to cut retirement pensions in its 2013 budget,
Rehn said that it was “indispensable” for Madrid to “ensure that the
pension system is sustainable,” and that all its decisions must be
in that direction.
The government said last Thursday, while unveiling its 2013 budget,
that pensions would rise by 1% next year in real terms. The only other
categories in which spending will rise next year are student
scholarships and debt service payments.
–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com
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