http://www.guardian.co.uk/business/2012/sep/02/eurozone-crisis-thinktank-ecb-bond-rescue
( Ever notice how organizations that aren't going to contribute a dime tell the ECB to do open ended bond buying of spanish and italian debt ? )
Spain announced its plans for cleaning up its banking sector earlier. With the full legislation only just released, we are still looking through it and will bring you the pertinent points in due course. But there was also another interesting development with regards to the ailing lender BFA-Bankia.
The Spanish government announced this afternoon that BFA-Bankia will receive an "immediate capital injection" from Spain's bank restructuring fund (FROB). Nonetheless, Spain has decided not to request the early disbursement of part of its €100bn bank bailout package. This is despite the fact that €30bn had been set aside for emergencies, as the Eurogroup noted in a statement issued earlier this afternoon. The funds will therefore be paid out in advance by the FROB and will be eventually incorporated into the Spanish bank bailout when it is fully dispersed.
This raises a couple of interesting questions. Firstly, why is Spain so keen to avoid tapping the €30bn kept in reserve? The money is there for just such an occasion, and in fact it was fairly obvious that this exact situation would arise. What's more, the money will be folded into the bailout anyway. Therefore, we can only imagine that the Spanish government is keen to avoid some kind of negative stigma – although this seems slightly strange since the bailout is already confirmed. It is worth keeping in mind the constraints of the EFSF vs. ESM funding (which we covered here), so it is possible that Spain and the eurozone have decided they want to wait until the ESM is fully operational before tapping the funds.
( Ever notice how organizations that aren't going to contribute a dime tell the ECB to do open ended bond buying of spanish and italian debt ? )
Eurozone crisis: thinktank urges ECB to resume bond rescue
José Ángel Gurría of Paris-based OECD says European Central Bank should start unlimited bond-buying of crisis-hit countries
Email
OECD (Organisation for Economic Co-operation and Development) secretary general José Ángel Gurría has called for the ECB to resume buying of bonds for crisis-hit countries. Photograph: Olivier Hoslet/EPA
The head of the Organisation for Economic Co-operation and Development has urged the European Central Bank to start buying bondsof crisis-hit countries again, to help bring down their borrowing costs.
José Ángel Gurría, secretary general of the Paris thinktank, said: "The ECB should start unlimited bond buying, the sooner the better. It has to be a credible signal … to say: we have members of the family that are doing the right thing, we will not let you push them around."
The ECB will meet on Thursday to discuss, among other things, the potential to resume the bond-buying programme.
The need to bring down Spain's borrowing costs is becoming increasingly urgent. The heavily indebted country is due to pay back €15bn next month, but cannot borrow at affordable rates to refinance the debt. The yield on Spanish 10-year bonds last week got perilously close to 7%, a level considered unsustainable in the long term. By contrast, the yield on German 10-year debt is 1.3%.
The Spanish prime minister, Mariano Rajoy, said at the weekend a monetary union could not function with such a wide gap between the borrowing costs of member states. He too urged the ECB to restart the bond-buying programme but continued to resist calls to seek more financial help.
Spain, which has already implemented severe austerity measures in return for up to €100bn in aid for its banking sector, is reluctant to ask for more as it fears further austerity could push the country into a recessionary spiral. Rajoy said he would await decisions by the ECB and then consider "what is good for Spain and the euro", suggesting he will not make any request for further aid before the meeting on Thursday.
He said Spain had already done more than other countries in the eurozone to address its budget problems. "We have raised taxes, reformed our labour market, introduced a fiscal pact into our constitution and passed a law for budget stability."
The ECB president, Mario Draghi, has been thrashing out a rescue package for Spain this weekend, arguing for purchases of the bonds of struggling member states. Germany opposes such a move, saying it would damage the credibility of the bank and the currency.
Reports suggest Jens Weidmann, the Bundesbank president and Germany's member of the ECB's governing council, repeatedly threatened to resign because of his opposition to a renewed bond-buying programme.
"For me such a policy comes close to financing states with the printing press," he said in German newspaper Bild Zeitung. He warned that such a policy "can get [states] hooked like a drug".
Despite Germany's economic clout within the eurozone, Weidmann has only one vote in the ECB and economists expect confirmation on Thursday that the ECB will restart the bond-buying programme.
However, it is thought the announcement may not be enough to galvanise the markets. Analysts at Capital Economics wrote in a note: "We expect the [ECB] to disappoint markets by providing only details about how it might buy bonds in future instead of a grand plan for immediate and massive purchases." Previously the ECB has said it will only buy sovereign bonds at the request of a country, and if certain conditions are agreed.
and........
http://openeuropeblog.blogspot.com/2012/08/bankia-to-finally-get-its-bailout.html
The Spanish government announced this afternoon that BFA-Bankia will receive an "immediate capital injection" from Spain's bank restructuring fund (FROB). Nonetheless, Spain has decided not to request the early disbursement of part of its €100bn bank bailout package. This is despite the fact that €30bn had been set aside for emergencies, as the Eurogroup noted in a statement issued earlier this afternoon. The funds will therefore be paid out in advance by the FROB and will be eventually incorporated into the Spanish bank bailout when it is fully dispersed.
This raises a couple of interesting questions. Firstly, why is Spain so keen to avoid tapping the €30bn kept in reserve? The money is there for just such an occasion, and in fact it was fairly obvious that this exact situation would arise. What's more, the money will be folded into the bailout anyway. Therefore, we can only imagine that the Spanish government is keen to avoid some kind of negative stigma – although this seems slightly strange since the bailout is already confirmed. It is worth keeping in mind the constraints of the EFSF vs. ESM funding (which we covered here), so it is possible that Spain and the eurozone have decided they want to wait until the ESM is fully operational before tapping the funds.
Reading the press release, it is also clear that this is a restructuring of BFA-Bankia, meaning it is still viewed as a viable bank. This seems almost outrageous for a few reasons:
• Bad loans held by Bankia jumped by 44% (to 11%) in the past six months aloneIt’s been clear to most for some time that Bankia is no longer viable. The latest government plans for dealing with the banking sector provide for an “orderly resolution” of unviable banks and a template for splitting up its assets and winding down the institution. It is not entirely clear why this is not being applied here, although protecting retail investors could be part of it. In the end, though, investing further public funds into a failing institution will do everyone more harm than good.
• The group just posted a loss of €4.45bn, compared to a slight profit a year ago
• In the past six months the banking group has lost a staggering €37.6bn in client funds, a massive 28% fall.
No comments:
Post a Comment