Spain wants to regain the confidence of the financial world in its financial institutions with a new banking reform. The government in Madrid plans to adopt measures at its cabinet meeting today to get rid of bad loans and risk paper from banks’ balance sheets.
Prime Minister Mariano Rajoy expressed the hope that the reform would largely resolve the problems of the Spanish financial sector. He has not yet given any further details about the project. According to media reports, it is expected that the banks should be encouraged to set aside larger reserves to secure unsafe loans.
Influence on spring forecast
The situation in Spain is also the focus when the EU Commission presents its spring economic forecast today. In an interim outlook in February, Brussels had predicted a "mild recession" of 0.3 percent for the euro zone this year. Since then, the situation has deteriorated further, especially in Spain. It is eagerly awaited what the deficit forecast looks like for the debt-ridden country. Madrid will have to lower their new debt below the three percent threshold in the coming year in order to avoid sanctions. However, more and more experts fear that too tough austerity measures will stall the economy.
Backing for nationalization of bank
Yesterday the government in Madrid announced a partial nationalization of the country’s fourth largest bank, Bankia. The state takes over 45 percent of the capital. As announced by the Ministry of Economic Affairs, the bank will be placed under state control. Spain received backing from Brussels for this: This was a "step in the right direction," said EU diplomats in Brussels.
Bankia ranks fourth among the major Spanish banks in terms of market capital, behind Banco Santander, BBVA and CaixaBank. The bank is considered the biggest problem in the Spanish financial sector because of its numerous bad real estate loans.
Financial aid should be averted
Investors fear that Spain, like Greece, Ireland and Portugal, will have to ask for international financial aid. The country has fallen back into recession and the unemployment rate is 24.4 percent.