European Central Bank Governing Council member Ewald Nowotny said it would make sense for Spain to request a European Union bailout.
“I think it would be a sensible option” for Spain to request funds from the European rescue fund, Nowotny said in a live television interview with Austrian state broadcaster ORF yesterday. “Spain de facto already took actions that correspond with what one would have to do for the rescue fund. This is what the rescue fund is for and I think this would increase the trust in Spanish banks again.”
Concern over Spain’s ability to absorb mounting costs of cleaning up souring assets on the balance sheets of its banks has driven up the financing costs of the government, which is pushing for Europe to channel funds directly to lenders. Budget Minister Cristobal Montoro on June 5 used a radio interview to call for outside support, saying the sums needed to aid Spain’s banks aren’t “astronomical.”
“There is a general consensus that one needs to act as quickly as possible,” Nowotny said, adding that nobody knows exactly how big the capital requirements of Spain’s banks really are.
Bankia group, Spain’s third-biggest lender, is being nationalized and has asked for 19 billion euros ($23.4 billion) in government support to clean up its books. Santiago Lopez, an Exane BNP Paribas analyst, said in a May 29 report that “it’s not unreasonable to assume” that a further 45 billion euros of taxpayers’ money may be needed to support the banking industry, based on the level of provisioning requested by Bankia.
EU leaders, including ECB President Mario Draghi and European Commission President Jose Barroso, have called for a banking union with more coordination of regulation, as lawmakers seek to bolster confidence damaged by debt turmoil. EU President Herman Van Rompuy plans to report on proposed “building blocks” for deeper integration in the 17-nation euro area to the next summit of EU leaders on June 28-29 in Brussels.
Nowotny also said that one shouldn’t speculate on Greece leaving the euro. “One only can provide help if this country is willing to cooperate. If this doesn’t exist, then Greece has to bear the consequences,” he said.
Should a newly elected government not be ready to comply with the rules of the bailout, it would be “very difficult” for the country to get new funds, he said, adding that he assumed that the Greek population was aware of what was at stake.
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