Spain’s Economy Minister said today that there were no immediate plans to seek a bailout of Spain’s banks, with the results of an audit of the banking sector needed before any further steps are taken.
The minister, Luis de Guindos, said in Brussels: “I have absolutely not discussed any intervention in Spain’s banks today.”
He said that Spain was waiting for the results of an IMF report into the banking sector, which is due on Monday, and then further reports from independent auditors.
“After that, in no more than ten, 15 days we will have the report from the independent auditors ... which we are certain will be very similar to that of the International Monetary Fund,” Mr de Guindos said. “From there the Spanish Government will take the decisions it has to take in terms of recapitalising the institutions.”
Earlier today a top German politician urged Spain to seek help from the European Union’s bailout fund to help to resolve its banking crisis.
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Volker Kauder, leader of Angela Merkel’s conservative CDU/CSU parliamentary group, said: “Spain is going to have to make a decision, and I think it should seek protection from the fund ... because of its banks.”
The European Financial Stability Facility (EFSF) is a temporary fund set up to help buffer indebted eurozone governments.
Germany has until now not sought to pressure Spain as it battles to contain its debt crisis and banking woes.
Mariano Rajoy, the Spanish Prime Minister, has refused to seek financial assistance from the European Union that would come with strings attached, but yesterday acknowledged that the situation with the banks had become critical.
He told MPs: “Europe must say where it is going, to give itself unity; it must say that the euro is an irreversible project that is not in danger, it must help nations in difficulty.”
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One compromise under discussion could involve EU aid paid to the Spanish state-backed Fund for Orderly Bank Restructuring (FROB). The Spanish Government in turn would push through mergers or closures of weakened Spanish banks, one report said today. Such a move would differentiate the Spanish crisis from the one in Greece, preserve Madrid’s sovereignty, and uphold the German position that EU funds should be paid only to public institutions.
Meanwhile, the European Commission will today propose far-reaching powers for regulators to deal with failing banks. The proposal, which suggests closer co-ordination between EU members and increased powers to force losses on to bondholders, is unlikely to take effect, however, before 2014.
The Commission’s 156-page draft legislation is expected to suggest giving supervisors powers to “bail in”, or force losses on to bondholders of a failing bank, so that taxpayers are kept off the hook, and forge closer links between national back-up funds to wind up cross-border lenders.
Mr Rajoy yesterday pleaded for help from Brussels as his country’s borrowing costs soared. The interest rate on Spanish ten-year bonds peaked yesterday at 6.512 per cent, but fell back to 6.258 per cent today. Analysts regard anything approaching 7 per cent as unsustainable.
Spain’s teetering Bankia needs €19 billion (£15.4 billion) to restore its balance sheet. Spanish leaders want European funds poured directly into the bank — a move that would be unlawful under European treaties which say that aid can go only to nation states.
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European stock markets made early gains today amid hopes that the European Central Bank could signal its willingness to stimulate the battered eurozone economy.
Investors were betting that, at its policy meeting later today, the ECB could hint at a future interest rate cut or emergency loans to banks in an attempt to ease mounting pressure on the banking sector, particularly in Spain.
Few analysts expect concrete action from the ECB, with most suggesting that it will choose to hold fire on any further stimulus until it sees governments taking more positive steps.
Carsten Brzeski, at ING in Brussels, said: “The ECB looks tired of being the eurozone’s fire brigade and seems to have a preference for staying on hold. It looks like the ECB will want to keep the pressure as high as possible to tackle political complacency.”
Steven Englander, strategist at Citigroup, said: “They are likely to signal the possibility of rate cuts and additional [long-term refinancing loans for banks] if progress is made on the political front.”
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Howard Archer, at IHS Global Insight, said: “We doubt that the ECB will cut interest rates as soon as today, although it is not inconceivable given the eurozone’s heightened economic and sovereign debt problems. But we do now think it is highly likely that the ECB will cut interest rates to 0.75 per cent in the third quarter.”
Observers believe that Mario Draghi, the ECB president, and the central bank’s governing council may be more inclined to respond if EU leaders give positive commitments at their summit later this month.
Its hand could be forced if the economy keeps deteriorating or a government defaults on its debt. Some analysts believe that the ECB could cut the interest rate from 1 per cent to as low as 0.5 per cent.
Currency and stock markets showed cautious gains in advance of the ECB meeting. The euro was up 0.3 per cent at $1.2490, pulling away from a two-year low of $1.2288 touched last Friday.
The FTSE 100 was up 1.4 per cent, or 75 points, at 5,322 in morning trading, while Frankfurt and Paris both added more than 2 per cent.