Just prior to the EU summit this week, Spain has made a formal request for a bailout loan for its banking sector from its eurozone partners. It was expected.
The 17 eurozone countries have agreed to lend up to €100bn to Spain, though no specific figures have been given as yet. It is understood that the bailout deal will be dependent on independent audits last week which said that the banks would need up to €62bn to stabilise themselves.
In fact, Spain’s Economy Minister Luis De Guindos said the audits, and a report from the IMF, should be a starting point. Spain’s formal request was made to Eurogroup chairman Jean-Claude Juncker.
The letter said that Spain planned to sign a memorandum of understanding for the package by 9 July, which would include details such as exactly how much would be borrowed. It said the amount would be enough to cover all the needs of its banks and an additional security buffer.
Europe seems to think that the request will calm the markets and save the eurozone from further stress. European Commissioner for Economic and Monetary Affairs Olli Rehn welcomed the request and said: “Restructuring the banking sector is key to reinforce the confidence in the Spanish economy and to restore the conditions to proper access to credit by companies and households, thus for sustaining the recovery.”
He also said that he expected Spain to work to make its public finances sustainable and bring down its deficit. “There cannot be sustainable growth without sustainable public finances, both at national and sub-national levels,” he said.
The problems facing Europe’s banks will be on the agenda at the summit of European leaders later this week. According to draft documents prepared for the meeting, which have been reported by news agencies, delegates will be discussing specific proposals for a European banking union. The idea was first put forward by German Chancellor Angela Merkel and has received the backing of European Central Bank Chairman Mario Draghi. It is understood that the proposals include having a single European banking supervisor and a common scheme for guaranteeing bank deposits.
Options for the regulator include having one body, possibly the European Central Bank, to oversee the continent’s biggest banks. Another independent body would be set up to monitor other smaller scale banks. Mrs Merkel had also lobbied for closer political union, but she seems to have suffered a small defeat with the proposal also being made for closer fiscal union, with the prospect of eurozone countries sharing debt raised again.
Time and time again, summits have offered band aid solutions. This time, it must see concerted and concrete action. Time and time again, it has been clear that the deals reached were not enough to really deal with the crisis that continues to linger. Malta, of course, will have to do its bit – as will other good performers such as Germany and the Nordic countries. But there is no more room left for procrastination. When Portugal was bailed out, it was hoped that it would deflect attention away from Spain and Italy. Now, France is also being dragged into the mire. The eurozone’s operations must change – it is amply clear that the bloc cannot continue to function in the way that it is. Nothing short of a radical overhaul will change matters. If nothing is done this time, then it well and truly could be curtains.