The troika gives Spain a positive report in last review of fulfillment of bank bailout terms

Spain will exit its bailout program for the cleaning up of its banks in January without the need for any safety net after the European Central Bank, the European Commission and the IMF gave the country a pass mark in its last report on the fulfillment of the commitments it acquired, albeit with provisos.

“Spain has pulled back from severe problems in some parts of its banking sector, thanks to its reform and policy actions,” the ECB and the EC said in a joint statement.

However, they added that while the economy has begun a very gradual recovery and the image of Spain in the international financial markets has improved, while the financial situation has stabilized, “the broader economic environment has continued to weigh on the bank sector” and lending continues to shrink, the statement said. It also said that the “adjustment in the real estate market has slowed down but it is not yet completed.”

Destruction of employment

It also expects the economy to soon stop destroying jobs after emerging from an extended recession in the third quarter of this year. “The recent encouraging macroeconomic developments bear witness of advancement in the process of adjustment of the Spanish economy and corroborate the expectation of a gradual recovery in activity and of an approaching end to employment destruction,” the troika members said. “The economic situation remains, however, subject to risks as imbalances continue to be worked out.”

They pointed to ongoing risks stemming from persistent imbalances in the economy and recommended more reforms to stabilize the economy and the banking system.

“The policy momentum needs to be maintained to finalize ongoing and planned reforms,” the statement said. It highlighted delays to introducing a law governing professional services and associations, a pending overhaul of the public administration, the need for further strengthening of labor market policies, the elimination of the so-called electricity tariff deficit and the planned revamp of the tax system.

The statement makes particular reference to nationalized banks such as Bankia, which are currently under control of the state Orderly Bank Restructuring Fund (FROB). “Policy makers and supervisors in particular will need to continue devoting close attention to the banks currently owned by FROB, in order to ensure proper governance and business models for these banks going forward,” it said.

It also pointed to the challenges facing the Sareb, Spain’s so-called bad bank, which acquired toxic real estate assets from the nationalized banks, in offloading those assets and “contributing to the proper functioning of real estate markets in Spain at large.”

Spain drew some 41.5 billion euros from a 100-billion-euro rescue fund from the European Stability Mechanism, with most of the money going to recapitalize the nationalized banks, particularly Bankia.