Spanish proposal to inject capital directly into troubled entities wins support

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By Julia Pastor, in Madrid | The solution proposed by the Spanish president Mariano Rajoy to inject capital directly into troubled entities, with no need of intervening the whole of the countries' economy is gaining momentum. It was the International Monetary Fund the first organisation which gave a boost to the idea when its managing director, Christine Lagarde, assured that Spain did not require a rescue. Last week, Mario Draghi’s statements about the creation of a European banking union pushed forward a bit more Spain’s government argument. On Monday it was Paris and Brussels that openly supported using the European Stability Mechanism (ESM) to recapitalise banks directly.

In his first visit to Brussels since it was appointed, the new French economy minister Pierre Moscovici considered it is “decisive” enabling the European rescue fund to participate without intermediaries in the financial sector direct recapitalisation. He also pointed out that the proposals are already on the table and was confidente that

“these will be one of the solutions for future to be adopted in the next June 28 and 29 summit.”

On the other hand, the European commissioner for Economic Affairs Olli Rehn noted that

“although this possibility is not part of the ESM creation treaty at this moment, the way it was conceived, we think it is very important to take new developments into consideration, because we are discussing all that can involve creating a single banking market.”Creative Ways To Win Back A Girlfriendote>
The main obstacle for the transformation of the European stability fund’s foundations would be Angela Merkel’s position. The German Chancellor has so far refused to relax the rescue fund regulations. At the moment, Merkel, after having met with the European Comission’s president Jose Maria Durao Barroso, has spoken in favour of banking supervision mechanisms in the euro area only in the medium term.

Emilio Botín, Banco Santander’s president, which is the biggest European bank in terms of assets, also referred to the recapitalisation that Spanish banks in difficulties may need. According to Botín, Spain’s financial industry would overcome such problems if the EU created some instrument to provide about €40 bilion for the restructuring of Bankia, Catalunya Caixa, NovacaixaGalicia and Banco de Valencia.

From Ahorro Corporación Financiera (ACF), analysts comment that

“any progress in fixing a direct aid mechanism for the European banking sector should have a  positive impact on the Spanish banks’ stock prices”.

They estimate as well that “ the recapitalisation needs would reach, whether from the State or from private sources, an amount of €56.5 billion. A sum of €41 billion would be addressed to non listed entities,” which is a figure very similar the one mentioned by Mr. Botín.

The new aid program could be passed at the end of June and launched as soon as the new ESM comes into force. To that end, it will be required the treaty to be ratified by a number of members equivalent to 90% of its capital. At this moment, only France, Greece, Portugal and Slovenia confirmed the treaty, which totals a short 26% of capital.


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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.