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Second bailout

The EC has imposed more draconian conditions before recapitalizing Spain’s troubled banks

In recent weeks, Brussels has speeded up its program to bail out the Spanish banks. The vice-president of the European Commission (EC), Joaquín Almunia, announced on Thursday a capital injection of 1.865 billion euros from the European Stability Mechanism for the banks that are in trouble but have not been nationalized, such as Banco Mare Nostrum (BMN), Banco Ceiss and Liberbank. But the money is coming with strings attached. The EC has imposed a series of conditions, and the fact that it was Almunia himself who explained the operation confirms that Europe wants these conditions made clear, and that their communication is not conditioned by national political interests.

The conditions for BMN, Ceiss and Liberbank are practically the same as those imposed in the case of the nationalized savings banks. The EC is insisting on restructuring in terms of personnel and branches, with cuts in size of 30 percent — but in the case of BMN as high as 40 percent. A look at the numbers gives an idea of the extent of the cutbacks they are seeking: one out of every three employees could find themselves on the dole or facing early retirement in the next few months. What's more, their activity is being limited geographically to their regions, and away from the investment in real estate that caused the boom and bust in the first place.

As to whether these measures are adequate, the answer is yes, but with a number of nuances. The management of many of these regional banks has been very poor, and greatly influenced by political interests. In fact, these interests have had such a strong influence on some savings banks that they have led to their ruin. This is particularly true in the case of Bankia and the Valencian savings banks, which have been devastated by their exposure to the real estate sector.

But banning these banks from operating in real estate altogether could reduce their capacity in the future for growth. Rather than being cautionary measures, the conditions from Brussels appear to be a reordering of the last 20 years, which will see either the disappearance of the savings banks as we know them, or at least their listing as endangered species. They will, however, not be subject to the same supervision as other banks, meaning that they will be more opaque, in a similar way to the German equivalent.

Shortly after Almunia announced this raft of conditions, Judge Fernando Andreu began questioning former Bankia president, Rodrigo Rato, in a quest for explanations about the bankruptcy of the lender. In March, the bank was showing profits of 300 million euros. Just a month later, those profits had turned to losses of three billion euros. A parliamentary commission was unable to clear up exactly what had happened in Bankia, which was nationalized and had capital requirements of 19 billion euros. We can only hope that the judge manages to define who is responsible for the bank's failure, something that all citizens deserve to know.

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