Merkel highlights mistakes made with Spanish banks

German Chancellor Angela Merkel held up the situation of Spain’s banks as an example of how not to proceed as Europe seeks to put the euro crisis behind it.

Merkel was referring to the stress tests carried out by the European Banking Authority (EBA) in 2011 that failed to uncover the full extent of the problems facing some Spanish lenders because of their exposure to the ailing real estate sector. A number of banks, most notably Banco Financiera y de Ahorros-Bankia, were nationalized prompting the Spanish government to seek a loan of up to 100 billion euros to recapitalize the sector.

The German leader said she backed greater supervision of the banks but cautioned against too much haste in setting up a pan-European overseer. “I am in favor of creating a supervisory authority for the euro zone, but we have seen how the EBA was incapable of seeing the problems the Spanish financial system was suffering from in the bank stress tests,” Merkel told a meeting with German business people.

Merkel was due to meet later Tuesday with European Central Bank (ECB) President Mario Draghi. She insisted it was premature to talk of the European rescue funds lending directly to euro-zone banks without a supervisor for lenders in the single currency area being in place.

The German leader said the only way to compete in a global economy is through painful structural reforms and more reasonable fiscal policies. “In the financial markets there is a lack of confidence about the ability of some countries in the euro zone to pay their debts over the long term,” she said. “The world is asking how competitive the euro-zone countries are.”