As day one of capital controls in Greece unfolded, the initial jolt to investor confidence in Spain subsided somewhat with each passing hour.
The Spanish benchmark Ibex index rallied back on Monday afternoon, reducing its early morning losses of 5.6% to 4.56% and ending at 10,852 points. But this was still the sharpest drop since August 2012, when the threat of a euro breakup was looming large over Europe because of the situations of Greece, Portugal and Spain.
Meanwhile, the gap between Spanish and German 10-year borrowing costs rose to 185 basis points early on Monday, then fell to 147 halfway through the day, compared with 118 when trading ended on Friday.
No doubt it would affect the recovery in the short term, although we believe the effect would be small”
BBVA research analyst Rafael Domènech
In a bid to allay fears of a possible contagion, Spanish Prime Minister Mariano Rajoy issued a message of calm on Monday, underscoring that Spain has done its homework.
“Spain and Spaniards can rest easy, among other reasons because over the last few years, thanks to their efforts, they have supported the reforms that were carried out,” he said, speaking at Popular Party headquarters.
Rajoy called on Spaniards to continue supporting “serious policies,” in contrast to those defended by “Podemos-Syriza,” a reference to the Spanish anti-austerity party that is often described as a sister to the ruling Greek party.
The conservative leader, who faces general elections in the fall, rejected comparisons between Spain and Greece, claiming that the former was never bailed out and did not have to accept “anybody’s instructions.”
Greek Prime Minister Alexis Tsipras announced on Sunday night that Greek banks would be closed all week. On Friday, talks between Greece and its European Union partners broke down after Tsipras announced that his government would hold a referendum on July 5 so voters could decide on the bailout terms.
While Spain did not file for a full-fledged bailout during the protracted economic crisis, it did accept aid for its banking sector in June 2012.
Rajoy, however, refrained from the harsh words used earlier in the day by former conservative prime minister José María Aznar and by ex-French president Nicolas Sarkozy at the opening of the summer courses at FAES, the PP’s think tank.
Aznar and Sarkozy attacked the “irresponsible behavior” of the current Greek administration and its prime minister, whom they accused of taking the European project to the brink of disaster.
Sarkozy said that Tsipras presides “a government that lied to its people” and that he is attempting to make the most of “all the advantages of belonging to the European Union but without assuming any responsibilities.”
Spanish financial analysts on Monday admitted that a Greek exit from the common currency was a likely scenario following the breakdown of talks over the weekend.
“And if that finally happens, of course it would have effects on the Spanish economy, although we still have to wait,” said Ángel Laborda, of the savings banks foundation Funcas.
However, he and Rafael Domènech, head of the BBVA’s developed economies research department, agreed that any impact on Spain would be “limited.”
“No doubt it would affect the recovery in the short term, although we believe the effect would be small,” said Domènech. “We don’t have a crystal ball, it depends on the outcome and on European institutions’ response. But the European Central Bank reiterated on Sunday that it will do everything necessary to ensure the sustainability of the euro zone.”
The Madrid exchange nevertheless posted one of the worst performances of Europe’s main trading floors on Monday, surpassed only by Milan.
Banks suffered the brunt of the Greek effect. At close of trading on Monday, Santander had retreated 6.7%, BBVA had slid 6.02%; Bankia 4.25%; Banco Popular 7.18%; CaixaBank 4.32%; Sabadell 5.20% and Bankinter was down 4.87%.
But Economy Minister Luis de Guindos defended Spanish lenders, saying they “generate no doubts of any kind” and calling their situation “completely different” from the state of things three years ago, before the banking bailout and the reforms that forced many struggling savings banks into mergers.
“I am convinced that Greece will ultimately remain in the union, but from the Spanish point of view, we have never been so well prepared for this situation as we are now,” he said in a press conference on Monday morning.