A DEAL BETWEEN eurozone finance ministers for joint rescue funds to make up to €100 billion in recapitalisation loans for Spain’s hard-stretched banks has raised a slew of questions on the details.
Here’s what is known so far about how it is going to work:
The credit-line is supposed to exceed the worst-case scenario, after the International Monetary Fund suggested that €40 billion might have covered the most urgent needs. Spain is waiting for the results of commercial audits, due by 21 June – the day eurozone finance ministers meet in Luxembourg and when it is expected to formally request the aid.
Interest rate and loan term
Spanish daily ABC said this week the loans would be for 10-15 years, with a rate of 3 per cent. Other reports have said repayments would not start until 2018. Eurostat, the EU’s data agency, confirmed on Wednesday that loans from the European Financial Stability Facility – as opposed to the as-yet-unratified European Stability Mechanism – will impact on lending states’ debt and deficit tallies.
To what extent remains unknown, as precise terms will depend on “market conditions,” sources insist. The 3 per cent could become 4 per cent, according to the European Commission. Another source, off the record, also said that Germany could demand 5 per cent – for lending money it can raise on financial markets at next to zero cost.
The Spanish government has been at pains to differentiate this aid package from the wider bailouts accorded to Greece, Ireland and Portugal. Madrid says this package is only for its banks, and that therefore no new austerity will be imposed on the country’s public sector. But the EU’s normal monitoring to ensure that deficit targets are maintained, which carry potential cash sanctions if missed, will apply.
However the aid does come with conditions for the banks. Brussels, which is bound by competition law governing state aid, is pushing for a restructuring of the country’s financial sector.
EFSF or ESM?
The issue here is two-fold: markets prefer the EFSF, because public lenders are not granted preferred creditor status in the event of default as is the case with ESM loans. But governments find the ESM, where spending is not added to debt figures subject to routine EU surveillance, an “easier sell in parliaments,” according to one well-placed source. A decision on how much each fund contributes (the two are to operate in parallel for a year) is set to be made at the Luxembourg meeting. The ESM was due to be fully ratified before the end of June, but is not expected to be ready until 9 July at the earliest.
The previous bailouts were supervised by a so-called troika of officials from the Commission, IMF and European Central Bank. EU officials say there is to be a “quartet” this time as the European Banking Authority will join in surveillance operations. Even though the IMF is not providing any of the funds, it is still set to participate, having recently examined Spain’s financial sector. IMF participation is an often thorny issue, though, with the Fund widely seen as pushing hardest for austerity and structural reforms. As ever, politics at the highest level will decide how much weight these organisations carry on the ground in the Spanish capital.