The cost-free bailout
The government’s legitimacy in propping up banks depended on its financial neutrality
The state bailout of Spanish savings banks — undermined by their over investment, mostly in real estate development that has been almost impossible to offload since the crisis broke — was supposed to be free of charge to the taxpayer but has already cost us a quantity similar to the yearly bill for unemployment benefits or interest payments on the public debt.
The Orderly Bank Restructuring Fund (FROB) has just admitted that of the 52 billion euros of public money injected into the nationalized savings banks (including almost 40 billion lent by the European Union, which will have to be repaid), 36.931 billion has in practice already been lost, three quarters of it in 2012. This is already more than the 31.252 billion estimated on June 20 by the Spanish Banking Association. And it will be more by the end of the year.
The political hierarchy promised that the bill to the taxpayer would be zero. "This is a credit to be paid back by the banks themselves," explained Prime Minister Mariano Rajoy in Congress in June while detailing the EU bailout. "The objective is that it not cost the taxpayer a euro," Deputy Prime Minister Soraya Sáenz de Santamaría said later.
"The state can recover the aid" given to Bankia, opined the newly-appointed Bankia president Ignacio Goirigolzarri to EL PAÍS on May 26. "We cannot just sell off [the nationalized savings banks] on the cheap; we have to maximize their value as far as we can, even more than we have done so far," Economy Minister Luis de Guindos said on June 19.
Does this mean that he will sell Catalunya Banc at a profit - for more than the 13 billion euros of public money already poured into it — or NovaCaixa Galicia (NGC) for more than the nine billion already dispensed? For that we have to believe in miracles, because no buyer seems likely to come forward, unless these entities are equipped with massive Asset Protection Schemes (EPA), which are public subsidies to cover future unforeseen loan defaults, such as occurred in the previous sale of failed banks.
Contrary to repeated promises, the bailout will cost the taxpayer at least 36 billion euros
I am not trying to split hairs, but between zero cost (or the suggestion of profit) and a loss of 36.931 billion euros, there is a certain gap. Nor is it mere whining to dredge up from the archives the reiterated affirmations that the bailout affair would be cost-free.
The purpose of this contrast between reality and wishful thinking is to underline that, if the wishful thought was repeated so often, it must have been out of profound belief, and not out of mere considerations of propaganda or intoxication. And to conclude that, if the gap is so abysmal, the authorities ought to admit they were wrong from the start or demonstrate that the alternatives to the refloating and sale of the ruined savings banks would have been even more costly. Because after all, if the government was empowered to bail out the banks, it was thanks to the supposed legitimacy conferred by the zero cost of doing so.
The FROB has aired the idea that a different solution, such as the liquidation of the nationalized banks and returning the money to creditors, would have cost 128.471 billion euros, 76 billion more than the cost of the bailout. All these are monumental sums that boggle the minds of lesser mortals.
Considering that, up to now, all the benevolent, wishful calculations have turned out to be detached from reality, it would be worth the trouble to establish some sort of independent monitoring and accounting of the financial crisis — for example, in Congress.
Quite possibly this crisis might have turned out to be less costly to the taxpayer by means of complementing the bailouts with some piecemeal selling-off of the sick banks. Or by greater use of EPAs to facilitate the prompt sale of entities such as Catalunya Banc or NGC, which have been postponed twice, without the delay resulting in any improvement in their prospects or those of recovering the public money pumped into them.