LUXEMBOURG (MNI) – Eurogroup finance ministers decided Thursday
that up to E100 billion in aid for Spain’s banks could initially come
from Europe’s temporary bailout fund, the European Financial Stability
Facility, but they failed to resolve a key issue of whether those loans
will be senior to other Spanish debt.
Ministers said the loans will be provided by the EFSF if the
permanent bailout fund, the European Stability Mechanism, is not
operational by July 9 as currently planned. The Spanish credit line
would then be transferred to the ESM when it does become operational.
EU Economics and Monetary Affairs Commissioner Olli Rehn said
Eurozone finance ministers would aim to take a final decision on the
details of the Spanish aid programme at their next meeting, which is
also scheduled for July 9, opening the possibility that the EFSF might
not be used at all if the ESM were to be ready on time.
European President Jean-Claude Juncker and EFSF Chief Executive
Klaus Regling said that the issue of whether private investors would be
subordinated by the EFSF/ESM loans had not been decided.
“We have to discuss this in the coming weeks, but this is not as
important a question as it may seem,” Juncker said.
Regling said that if Spain used all of the E100 billion in aid
available to it, the loans would amount to less than 10% of all public
Spanish debt, suggesting that the seniority issue was “not quite as
important as one gets the feeling reading about it.”
Financial markets reacted negatively to the Spanish bank bailout
deal because the funds are being loaned directly to the government,
adding to Madrid’s debt burden.
By one estimate, if the full E100 billion is used, it would push up
Spain’s debt-to-GDP ratio by roughly 10 percentage points. However,
estimates of the Spanish banking sector’s capital needs published so far
show that far less will be needed.
Two independent audits published Thursday showed that under an
extremely pessimistic “stressed” scenario that is considered improbable,
Spain’s banks could need up to E62 billion. Earlier this month, the
International Monetary Fund put the figure at E40 billion.
Investors also reacted negatively to the Spain deal on the
understanding that the aid would carry senior creditor status, meaning
that private investors would take much heavier losses in any Spanish
debt restructuring.
Juncker said he expected Spain to make a formal request for the aid
on Monday. “The exact amount of money will be known by the end of the
MOU negotiations,” he said, referring to the memorandum of understanding
necessary to complete the deal.
Regling said that the EFSF “will be ready and able to support Spain
very quickly even with very large amounts.” He said the fund’s
experience in Greece shows how banks could be recapitalized with EFSF
bonds, removing the need to raised the funds in the markets.
–Paris newsroom, +331-42-71-55-40; jduffy@marketnews.com;
–Brussels newsroom, +324-952-28374; pkoh@marketnews.com
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