Spain has now officially sent the long-awaited application for billions in aid for its ailing banking sector to its euro partners. According to the Minister for Economic Affairs, Luis de Guindos, no specific amount is specified for the time being. In the letter to Eurogroup leader Jean-Claude Juncker, his ministry said that the exact amount would be determined at a later date and that it would be large enough to cover the need and include a safety cushion. According to de Guindos, the details for the rescue of the sector should be known by July 9th.
The country’s central bank had one last week Cited requirements of up to 62 billion euros, while the euro countries reckon with a necessary amount of up to 100 billion euros. They already had that amount overall promised. The conditions have yet to be negotiated with the Eurogroup. In addition to the sum, the amount of the interest and the repayment periods are important.
First EFSF, then ESM?
Juncker had already stated that the money should first be paid from the euro rescue fund EFSF and later from the permanent rescue fund ESM, as soon as this came into force. If the ESM is ready for use in time, this fund can also be used directly, said Juncker. However, this is unlikely as the fund has not yet been ratified in all countries, including Germany.
EU Commission warns Spain
After applying for emergency loans, the EU Commission warned Spain to implement the EU’s recommendations. Spain is obliged to do so, said Competition Commissioner Joaquín Almunia in Madrid. Brussels had already recommended to Spain on May 30th, among other things, to raise VAT, raise the retirement age and cut the salaries of state employees. The conservative government of Prime Minister Mariano Rajoy has so far only promised to increase VAT in the coming year. The necessary measures to reduce the Spanish budget deficit are "inevitable", stressed Almunia. Spain had fallen behind in meeting the deficit target for this year. Madrid have pledged to cut the shortfall from 8.9 percent last year to 5.3 percent of economic output this year.
Spain is the fourth country, after Greece, Ireland and Portugal, to apply for aid from the euro rescue fund. The Spanish state can currently only borrow money on the financial markets at very high interest rates. The country’s banks have fallen into a crisis due to a burst property and credit bubble, the consequences of which they can no longer deal with on their own. Even the ongoing aid from the Spanish government is insufficient.