In my previous articles I’ve written about speculations that the Spanish reforms package will be followed up with a formal bailout request by the country. The country unveiled a set of reforms and a new budget plan on Friday. Just few days later we get fresh speculations of a formal sovereign bailout request.
Allegedly the EU’s Economic and Monetary Affairs Commissioner Olli Rehn send a message to Spain on Monday that the EU wants to see the country apply for aid soon, adding that they will not impose any new reforms and cuts beyond what Spain has announced by itself few days ago.
But allegedly Germany is very reluctant on the matter. A senior German source had this to say on the matter: “”It doesn’t make sense to send looming decisions on Greece, Cyprus and possibly also Spain to the Bundestag one by one,” while adding “Bundling these together makes sense, due to the substance and also politically.” No name of the German source was given.
Allegedly similar exchanges happened at the Eurozone’s ministerial meeting in Cyprus few weeks ago. The German Finance Minister Schaeuble back then told other ministers that he can’t take another bailout request from Spain so soon after the Spanish Bank bailout.
When asked about these rumors both German and Spanish representatives denied them, the German government spokesman said that: “Every country decides for itself. Germany isn’t pushing in one direction or the other”. The spokeswoman for the Spanish Prime Minister Rajoy said she was not aware of any German veto of the aid request. She added that: “What we are focused on is to get the decisions of the June summit on the banking union implemented. That would send a strong message of confidence to the markets”.
These speculations come in a bad time for Europe as Moody’s on Monday placed doubts on Spain’s official figures. The Spanish bank stress test results published last week put the estimate for extra bank capital needed at 53.7 billion Euros.
The ratings agency had this to say: “The recapitalization amounts published by Spain are below what we estimate are needed for Spanish banks to maintain stability in our adverse and highly adverse scenarios,” adding that “If market participants are skeptical about the stress test, negative sentiment could undercut the government’s efforts to fully restore confidence in the solvency of Spanish banks.”
Moody’s puts the capital needed in the 70 to 105 Billion range. The agency questioned some of the assumptions in the test like the capital ratio. The stress test used a 6% core capital ratio while Moody’s used a 8-10% capital ratio. The rate used for Ireland’s test + a buffer was 9%.
Still the ratings agency said that a recapitalization is “intrinsically credit positive for all of the nation’s lenders since it would involve more capital and more banks than earlier efforts”.