Hearing about the European Comission’s “mission” in Spain, or about men in black arriving to Spain could sound some sort of a joke, but the thing is much more serious than the political terminology used by the European institutions during the crisis debt resolution. After eigtheen months of applying, Spain’s has finalised successfully the financial assistance programme to recapitalise its financial sector. The fifth and last review jointly delivered by the EC, the ECB and the external support of IMF and the European Banking Authority to the Spanish government on Monday 27th of January, assured its assessment on Spain’s banking industry progress is “positive”. “Spain has pulled back from severe problems in some parts of its banking sector, thanks to its reform and policy actions”, they confirms.
The comprehensive report analizes item by item the stabilisation of Spanish financial markets, including measures and stages, and also gives recommendations to continue financial sector reform beyond the finalisation of the programme.
The programme has been developed following three steps. First, an independent stress test that revealed a capital shortfall of about €57 billion for more than 90% of the Spanish banking sector. Second, the creation of bad bank called Sareb to tranfer toxic assets of banks receiving public support, and third the recapitalisation and restructuring of viable banks with a capital shortfall identified in the stress test.
On the grounds of all of those developings, European authorities stress on the importance of a complex net of measures such as the recent legislative initiative regarding the deferred tax assets recaude, which should support the solvency of the banking sector under the new EU rules on capital requirements, and also the restructuring of the savings banks with Unicaja ‘s bid for Banco CEISS and the return of NCG Banco, S.A. (NCG) to private ownership as major examples.
The fact that the 10-year Spanish bond stabilised over the German at about 220 basis points in the last months of year 2013, and has even gone below 200 recently can be considered a milestone and could be the figure that reflects best Spain’s financial success. So, the review remarks that “the continued improvement of the market sentiment is related to the cleaning-up of the Spanish banking sector, the ongoing adjustment of imbalances, signs of a nascent economic recovery as well as to the reduction of financial uncertainty in euro area financial markets in general”.
The euro area member states approved a credit line for Spain’s banking industry for an amount of €100 billion on 1st December of 2012, but finally the total sum of credit disbursed under the programme reached only € 41.3 billion, which were distributed as follows: € 38.9 billion for the recapitalisation of troubled banks and around € 2.5 billion for capitalising Sareb.
Furthermore, in order to consolidate Spain’s achievements, the agenda reform must go on working with measures among which outstand a smooth integration into the Single Supervisory Mechanism, the monitoring of Sareb activity to ensure a timely asset disposal while minimizing the cost to the taxpayer as well as of the implementation of the Law on evictions with a view to support financial stability.
European institutions have maintained an encouraging stand on Spain’s improvement from the beginning. ‘Spain is doing its homework’ or ‘Spain is in the right direction’ are statements many times heard from spokesmen of different regional insitutions. “Any comment or recommendation coming from the European Commission or the European Central Bank has to be considered seriously, at the end they are leading the country’s financial rescue”, many market watchers in Spain have said during the time of financial assistance.
As regards Spain’s government, minister of economy Luis de Guindos welcomed the finalisation of the bail-out process and the resulting final review.“Spain is not again a problem for the whole European Union an the euro zone. These are good news for everybody”. Reading De Guindos’ words between lines, what is good for Spain, is good for Europe. Certainly, while recognising Spain’s positive advance, the report does not omit noting that the mark has been achieved “with the support of the euro area and broader European initiatives”.
Read the whole report here