Brussels, 01/10/2012 (Agence Europe) - The European Commission remains certain that Spain will be able to meet its 6.3% target for its public deficit in 2012. Euro Commissioner Olli Rehn says that his department is busy assessing the new budget plans unveiled by Spain on Monday 1 October after a meeting between Spanish prime minister Mariano Rajoy and economy minister Luis De Guindos (see EUROPE 10698).
Following the unveiling last week of new structural adjustment measures and publication of the latest bank stress tests, the Spanish government has raised its public deficit forecasts, now expecting the deficit to stand at 9.44% of GDP in 2011 (up from the previous forecast of 8.96%) and 7.4% in 2012 (rather than 6.3%). Spanish debt is expected to top 90% of GDP. The increase in the deficit is mainly due to losses undergone in the public support for the national bank bailout fund, FROB.
On Monday, a Commission spokesperson said the Commission has been informed of the figures, but it is too early to say how the figures will impact on the Spanish deficit and debt because it depends on how the EU's statistical office, Eurostat, decides to classify the losses and bailouts of the banks. Eurostat is expected to release final figures on 22 October. The spokesperson pointed out that any impact would not be seen for another year.
Olli Rehn said that Spain had not made any new request for aid from the eurozone to help bring down its debt rollover costs, but everything necessary was in place should it decide to do so. He said it was important that the reforms of the pension system and other budget measures were implemented. On Thursday, Spain will be raising medium-term capital on the money markets with the world watching.
Bank audit. Last Friday, the Bank of Spain published the results of the stress tests on fourteen Spanish banks, carried out by Oliver Wyman consultants. Of the fourteen, seven banks (for example Santander, BBVA and CaixaBank) accounting for 62% of the Spanish banking industry have more than 6% of top quality capital to carry them through any major economic crisis (calculated in terms of a fall in GDP of 6.5% by 2014). Under the same scenario and after taking account of current merger plans and tax deductions, seven other banks would require nearly €54 billion in extra capital in addition to the capital requirements calculated for 31 December 2011. Some 86% of this €54 billion is for four nationalised banks: Bankia-BFA (€24.7 billion), Catalunya Bank (€10,8 billion), NCG Banco (€7.2 billion); Banco de Valencia (€3.5 billion). The other banks requiring extra capital are Banco Popular (€3.2 billion), BMN (€2.2 billion) and the Ibercaja-Caja3-Liberbank merger (€2.1 billion).
The amount of state aid that will be paid out in the end will not necessarily be €54 billion because several factors may reduce the amount, including asset sales; the raising of capital by the banks themselves on the money markets; making junior investors accept losses in their portfolio; and transferring toxic assets to a special bad bank that the Spanish government is setting up.
The bank stress tests were laid down under the Memorandum of Understanding (MoU) between Spain and its private lenders, which requires reform of the Spanish banking industry in return for up to €100 billion to bail out the banks. In a press release, the head of Eurogroup, Jean-Claude Juncker, said on Friday that the bank audit shows that the total amount of financial aid agreed upon in July will be more than adequate to cover the final financial requirements - and will also leave plenty of leeway.
Under the MoU, bailed out Spanish banks will have to submit their own recapitalisation plans in October, which will be followed by an assessment of the plans by Spain and the European Commission, which will divide the banks into two groups, those needing EU aid and those that will be given until July 2013 to recapitalise. Banks requesting state aid must submit a previously authorised restructuring plan. Toxic assets will then be transferred to a specially set up band bank and recapitalisation will begin in November.
Initial stress tests carried out by consultants Oliver Wyman and Roland Berger in June 2012 suggested that Spanish banks would be require a total of €62 billion in state aid (see EUROPE 10639). (MB/transl.fl)