The European Commission today unveiled sweeping plans to take control of failing banks across the Continent, as Spain fought to avoid onerous conditions in return for the impending bailout of its tottering financial sector.
The Commission’s blueprint for a banking regulation regime would enable the Brussels authorities to impose losses on the shareholders and creditors of banks across Europe in an attempt to protect European taxpayers from the costs of a rescue.
It would also give Brussels powers to intervene early to resolve weakened financial institutions.
Internal market commissioner, Michel Barnier, said: “We must equip public authorities so that they can deal adequately with future bank crises. Otherwise citizens will once again be left to pay the bill, while the rescued banks continue as before knowing that they will be bailed out again.”
But even if approved by European member states, new banking pan-European legislation is unlikely to come before 2014.
The more pressing concern for European policymakers is how to deal with Spain.
The Spanish finance minister Luis de Guindos said today that Spain is not seeking immediate help, but Spanish officials say privately that they will require at least €60 billion (£49 billion) to recapitalise their banks, which are sitting on large tranches of bad loans to the country’s collapsed property sector. Private-sector analysts put the capital hole in Spanish banks at double that.
Doubts about Spain’s ability to recapitalise its banks have grown in recent weeks as the government’s own borrowing costs have shot up. This morning Spanish 10-year bond yields were 6.26%, close to the 7% level that saw Greece, Ireland and Portugal forced to accept EU/IMF bailouts.
Yesterday Spain’s treasury minister, Cristobal Montoro, admitted the capital markets are now “effectively shut” to his country. Spain is believed to be pushing behind the scenes for the common European bailout fund, the European Financial Stability Fund, to inject capital into its banks directly. The centre-right government in Madrid hopes this would enable Spain to avoid the onerous conditions and regular inspections from European officials that have been imposed on Greece, Ireland and Portugal.
