Spain expects to use only 60 billion euros of the 100 billion pledged by its European partners to recapitalize the Spanish banking system, Economy Minister Luis de Guindos said in an interview published Monday by the International Herald Tribune.
A preliminary report released in June by two independent auditors estimated the country’s banks would need around 62 billion euros to clean up their balance sheets, badly impaired by their over-exposure to the real estate sector, which went into a tailspin around the start of 2008 and remains in the doldrums after a massive property bubble burst.
De Guindos told the IHT he does not believe the funding needs of the banks identified in initial reports by Roland Berger and Oliver Wyman would be “very different” from the final figures.
The minister said whether or not Spain decides to tap the European Financial Stability Facility (EFSF) or its permanent successor, the European Stability Mechanism (ESM), for another bailout in order to trigger a renewal of the European Central Bank’s bond-purchasing program “is something that is entirely open.”
However, De Guindos insisted that the markets had never been closed to Spain. “We were not on the verge of a precipice,” the minister told the IHT. “We have always been able to tap the markets — of course with higher interest rates — but the markets have not been totally closed up.”
Prime Minister Mariano Rajoy has said Spain will wait to see the conditions set for tapping the two rescue funds before deciding on its options.
The spread between the yield on the Spanish benchmark 10-year government bond and the German equivalent hit a euro-ear high of 649 basis points in July but has since retreated on growing hopes for decisive intervention by the ECB, whose president, Mario Draghi, has pledged to “do whatever it takes” to preserve the single currency. The risk premium closed at 503 basis points on Monday.
De Guindos said Spain would continue with its efforts to rein in the public deficit even if it does decide to seek help from the EFSF or the ESM.
“The Spanish government accepts that the intervention of the ECB in the secondary markets should not relax fiscal consolidation efforts and we have to give reassurances to the ECB that we are going to meet our commitments,” De Guindos said.
The minister said Spain was determined to bring the deficit back within the European Union ceiling of 3 percent of GDP by 2014 from 8.9 percent last year despite the country slipping back into recession again for the second time in three years. The Rajoy administration has announced tax hikes and spending cuts worth 102 billion euros over the next two-and-a-half years to meet that goal.
The IHT quoted De Guindos as saying that Madrid could make “stronger, although unspecified” fiscal commitments in return for the ECB buying Spanish debt in the secondary market.
However, Economy Ministry officials insisted that at no point during the interview with the IHT did De Guindos indicate the government was ready to introduce more austerity measures in return for ECB help.