Why do financial markets distrust the rescue of Spanish banks?

Why do financial markets distrust the rescue of Spanish banks?

  • Important questions about how the loan will be made are still unknown, such as where the money will come from, what interest or the final amount.
  • Elections in Greece and uncertainty about their outcome have accelerated the schedule of negotiations.
  • Keys to the rescue to the bank | Chronology of the European crisis.
Bolsa de Madrid

Interior of the Madrid Stock Exchange. GTRES

It had been expected for weeks and it was hoped that it would calm the financial markets. However, the rescue of Spanish banks, announced last Saturday, has not appeased the anger of investors : on Monday they opened with optimism and then placed themselves in figures of danger, milestones that continue in the day of this Tuesday, when the risk country has reached over 530 basis points. The rescue has not brought peace to the markets.

Some voices have come out to criticize this rescue and the different versions of it (Spanish Government, EU, opposition, etc.) show that there is still a lot to work on so that this decision can bring the desired tranquility.

Those not so small “details”


The government sold the ransom (or the loan line, as they like) as great news. So good that, in an attempt to normalize, President Rajoy went to Poland to see the debut of the national football team in the European Championship. However, it seems that there are still many things to decide and things that are not precisely details.

“There are two doubts that make it impossible for investors to react positively,” explains Pompeu Fabra University economics professor José García Montalvo, ” the technical details and the final amount that will be provided .”

There are two details that concern investors: the technical details of the rescue and the amount that will be provided. These “details, which really are not,” technicians are of vital importance: the first thing is to know the interest that the loan will be made – there is talk of 3% or 4% – or where the funds will come from for that financing . These billions can come from two places: the European Stability Mechanism (Mede) or the European Financial Stability Fund (EFSF). If it comes out of the first (which has 240,000 million euros in fund), the EFSF would issue debt and then lend it to the State in question with a small charge. This debt has no collection priority over other investors.

On the other hand, if the loan comes out of the Mede, it would have collection priority over other debts. Something that would make the debtors of Spanish banks nervous. The Minister of Economy, Luis de Guindos, played down this issue and assured that the loans would come from one or the other.

In the British newspaper The Guardian , which does not rule out the need for an even greater bailout for our country, picks up the concern of holders of Spanish debt bonds in case you choose the Mede. In that case, their payments would be in second place after the rescue loan, which would have priority to be returned and that would pose more risk to them.

The doubts about the amount that will finally be requested is not minor, although it will be cleared, predictably, next day 21 when the external audits present their reports on the Spanish banking. In any case, “if you ask for a small amount (40,000 million), it serves to cover provisions of the past and in six months we would be the same”, explains Professor García Montalvo. “On the other hand, if you ask for a lot (100 billion or more), you could activate the credit, if there was a demand for credit, but there would be a very bad signal on the Spanish banking system and doubts could persist.”

The Nobel Prize for Economics Paul Krugman, in his column for The New York Times , wrote on Tuesday that ” there is nothing wrong with this latest rescue plan (although much will depend on the details that are still unknown).” However, Krugman charged against European political elites, “willing to defend the banks and failing people” and warned that “the absolute catastrophe may be around the corner.”

The decision of Greece

Greece, the first country rescued and the one that suffers the most dramatic situation, continues to worry the eurozone. The choice of last weekend to decide the Spanish rescue was not taken lightly: this Sunday the Greeks return to the polls and the result is an unknown .

Foreseeing that some party like the left coalition, SYRIZA, which could reject the conditions imposed by the EU on Athens and force its exit from the euro, the eurozone had to take the necessary measures to avoid that, if that assumption were given, it would not affect to the weak Spanish and Italian economies.

Stiglitz does not like it

The first Nobel Prize in Economics to criticize was Joseph Stiglitz , who assured that the rescue plan for the eurozone will not work. “The plan is: the Spanish government rescues the banks and the banks rescue the government, it’s the voodoo economy, it will not work, it’s not working.”

Professor García Montalvo believes that ” there are people who do not realize that doing nothing is no longer an option , Spanish financial reforms obliged banks to make provisions with 80,000 million that are not available. put the money, something that would further trigger the risk premium and definitively close the market to Spain, or the rescue “.

An aid that accentuates the public debt

Another issue is how this rescue affects the Spanish public debt. Fidelity’s global equity investment director, Dominic Rossi, explained that European aid of up to 100,000 million euros, instead of separating the problems of banking from sovereign problems, what this help does is to bring them together .

While equity markets rose in response to the announcement of the bailout, Rossi continues, the government bond market has quickly recognized that aid adds pressure to sovereign risk , which has been reflected in the rise in Spanish debt yields. to 10 years.

In addition, this injection of capital has to go through the Spanish national accounts, which actually means that the Government is “stuck”, as it adds 100,000 million euros, or whatever the final amount, to the current level of Spanish public debt.