Spain to receive EU bank aid mid December

Spain bank bailout.jpg

Eurozone finance ministers approved yesterday (3 December) the disbursement of nearly €40 billion to help shore up Spain's strained banking system.


Spain on Monday requested formally the disbursement of €39.5 billion of European funds to recapitalise its crippled banking sector, the Economy Ministry said in a statement.

The money – €37 billion for the four nationalised banks Bankia, Catalunya Banc, NCG Banco and Banco de Valencia and €2.5 billion for the so-called "bad bank" – should be paid to the state's banking fund FROB around December 12, it added.

Eurozone finance ministers approved the disbursement yesterday evening at their monthly meeting in Brussels.

Jean-Claude Juncker, president of the Eurogroup, said the money should be available during the course of next week as Spain had met all the required conditions.

"We have also welcomed the decision by the ESM [bailout fund] board of directors to authorise the first tranche of the programme of up to €39.5 billion. The disbursements will be made in mid next week," Juncker said.

Spanish economy minister Luis de Guindos said the €37 billion aid would have "a 12-1/2 year maturity with a grace period of 10 years and an interest rate that is clearly below 1% and at least in the first year, will be just above 0.5%".

"We believe these are advantageous conditions, that will help heal, restructure and overcome the problems in the Spanish banking system," De Guindos said.

The Spanish minister also stressed it was "vital" that "the mistakes of the past" are not repeated. "The money will be in the FROB [Spain's 'bad bank'] from around 12 December and can be injected into the four nationalised banks."

"Some savings banks that haven't been nationalised have presented their own restructuring plans and will be approved by the end of December and they will need a lot less, around €1.5 billion at most."

The three nationalised Spanish banks will more than halve their balance sheets in five years, cut jobs and impose losses on their creditor bondholders in return for the EU aid, while a fourth will be sold off, the European Commission said in November.

Eurointelligence, an economic commentary and analysis website run by Financial Times associate editor Wolfgang Münchau, described the €40bn for Spanish bank recapitalisation as "astonishingly low".

"We never thought the €60bn recapitalisation figure for Spanish banks was realistic (our estimates are about three to four times this amount). Now we are told that the requirement is even less than the sums originally earmarked by external consultants."

"This is not really a recapitalisation, merely a very long kick-down-the-road," it said.

The Eurogroup decision, it added, "forms part of an overall strategy of denial about the need to substantial capitalisation" for the Spanish banking sector.

"The only good news is that the debate about ‘legacy assets’ might become less acute. If the banking union ever gets off the ground, the ESM should be able to recapitalise Spanish banks directly – which will cost a lot more €40bn."

The Eurogroup announced on 20 July it would grant a bailout of up to €100 billion to Spain to help the country recapitalise its banks (>> read full statement).

The exact amount that Spain will borrow from the eurozone will only be determined later on, the finance ministers said.

The eurozone heads of state and governments had earlier agreed, on 29 June, that EU rescue funds could be used in a "flexible and efficient manner" to lower government borrowing costs.

Under the deal, Italy, Spain and other troubled countries will also be able to tap the bloc's temporary EFSF and permanent ESM rescue funds to support their government bonds on financial markets.

The EU summit statement did not give further detail, saying only that the flexibility will be offered to member states that are in line with EU budget deficit rules.

  • 12 Dec. 2012: EU aid expected to become available for the four nationalised Spanish banks

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