WHATEVER the €100 billion ($126 billion) made available by euro-zone countries to recapitalise Spain's banks looks like, the Spanish government would really rather not call it that. "In no way is this a rescue," said Luis de Guindos, Spain's economy minister, while announcing that a deal to rescue Spain's banks had been done in a two-and-a-half-hour conference call with the 17 euro-zone finance ministers on June 9th. "It's a loan with very favourable conditions." The prime minister, Mariano Rajoy (pictured above), who left his underling to front the bail-out, was meanwhile busy giving the impression that all was proceeding as normal. When he eventually appeared before the press the following day, Mr Rajoy made repeated reference to "what happened yesterday", as if the rescue were an embarrassing incident that, out of politeness, ought not to be mentioned by name. Then he flew to Poland to watch some football.
This was understandable, given the importance of confidence to banking, if slightly comical. Yet it was also emblematic of Spain's approach to its banking crisis, characterised by a mixture of bluster and denial that has ultimately proved to be self-defeating. The good news is that this loan signals that the country is at last facing up to the problems in its banking sector. A hundred billion euros is at the high end of what most analysts estimate is required and should be enough to protect Spanish banks against further shocks.
The government said it would specify how much money the banks needed after it received an assessment from two independent consultancies, Oliver Wyman and Roland Berger, due by June 21st. The loan amount is more than double the €40 billion capital hole identified late on June 8th by a report from the International Monetary Fund, though the IMF had warned Spain would need an additional buffer on top of this amount. Last week Fitch, a rating agency, said Spanish banks might require €50 to €60 billion in fresh capital, or up to €100 billion if things became really bad. The government needs to request enough money to persuade markets that it will not underestimate needs for a third time—as it did with provisioning orders totalling over €80 billion in February and May, which have proved insufficient.
The bail-out will be channelled through the state-backed bank bail-out fund, the FROB (Fund for Orderly Bank Restructuring), and so will count as sovereign debt. If used in total, it would add about 10% of GDP to Spain's debt burden. Even then, the debt to GDP would probably peak at below 100% in 2015. This is still less than other highly indebted countries in the euro zone.
