Brussels, 07/04/2014 (Agence Europe) - In a report on their first post-aid programme monitoring mission in Spain, published on Friday 4 April, the European Commission and the European Central Bank says that Spanish “banks' liquidity situation and financing structure have strengthened further since the beginning of the year, and 2013 results showed a firming of profitability” but problems remain, such as high employment.
The lenders note: “A recovery in output is ongoing, as exports remain robust and domestic demand stops being a drag on growth amid rising confidence, easing financial conditions and a return to positive employment growth. Unemployment is on a gradual declining path, but still at a very high level. (…) Given the improved economic outlook, the 2014 deficit target should thus be well within reach with rigorous budgetary execution, whereas information on the measures planned to deliver the required fiscal adjustment in 2015 and 2016 is expected in the forthcoming stability programme. Large debt levels and related deleveraging needs in the private and public sectors put a lid on medium-term growth prospects and keep the economy vulnerable”.
Commenting on the banks, whose losses had forced the country to request aid of €40 billion from the European stability mechanism to bail them out, the lenders say: “Solvency ratios have been further increased, including by the significant accounting impact of recent amendments to the tax code regarding deferred tax assets. The restructuring of banks having received state aid is well underway, with burden-sharing exercises completed, although litigation is still ongoing. NCG Banco has returned to private ownership, and a 7.5% public stake in Bankia has been sold. (…) For banks, the main challenge at this stage appears to be the pressure on their profits from falling volumes of intermediation and still deteriorating asset quality, calling for close monitoring and adequate provisioning levels and capital buffers”.
Work on structural reforms is continuing, but some measures have suffered delays, like the law on professional services and associations, which could turn out less ambitious than planned. The government is preparing reform of the tax system. As laid down in the Stability Pact, the next lenders' monitoring mission to Spain (which exited the aid programme in January 2014) will take place in the autumn. (EL)