Brussels, 19/06/2012 (Agence Europe) - The EU bailout for Spanish banks will be channelled through the Spanish state and therefore increase the country's public debt, explained the European Commission on Tuesday 19 June, but the Spanish government is still trying to get the cash to go directly to banks. A spokesman for Euro Commissioner Olli Rehn said that some mechanisms were already in place, and others would be introduced, but all financial aid goes to the country requesting it. He admitted that direct bailout of Spanish banks would have the benefit of breaking the connection between bank problems and the public debt crisis, but said that any such change in the bailout mechanisms would take time to introduce and would not be available in the medium-term.
During a speech to the G20 summit on Monday the Spanish prime minister, Mariano Rajoy, said the extremely damaging connection between bank problems and sovereign debt risk had to be broken. Despite the Eurogroup's decision to give Spain up to €100 billion in financial aid to help it bail out its banks, suffering from the housing bubble burst (see EUROPE 10631), the markets are concerned about the country's finances and are demanding high interest rates. On Tuesday, Spain rolled over €2.4bn in one-year bonds for an average of 5% (compared with 3% for a similar deal last month). On Thursday, independent consultants are due to publish reports on Spanish bank bailout needs.
The Eurogroup is planning for the aid for Spain to come from the European Financial Stability Facility (EFSF, which has €240bn of lending capacity left) and the European Stability Mechanism (ESM, which has lending capacity of €500bn). Eurozone countries would rather the bailout comes from the ESM because it has higher priority than other loans in terms of repayment. The Commission hopes that enough eurozone countries will ratify the ESM treaty over the next few weeks so it can be up and running next month, explained Rehn's spokesperson. In order for the ESM to be brought on stream, it has to be ratified by countries representing at least 90% of its capital. Thus far, the Council of Ministers' website says that three countries have ratified it (France, Greece and Slovenia). Germany is expected to vote it through on 29 June. On Monday Italy's European affairs minister, Enzo Moavero Milanesi, wondered whether Italy's parliament would be able to ratify it on time (Italy accounts for nearly 18% of the ESM's capital). (MB/transl.fl)