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Spain races to shore up troubled banks
Measures to overhaul Spain’s ailing banking system are expected to be announced
today as the government races to shore up confidence in the economy and head off
fears that it will need an international bailout to remain in the eurozone.
The emergency measures taken to partly nationalise the country’s fourth
largest bank, Bankia, on Wednesday are not regarded as enough to encourage
investors to start pouring their money back into the country.
Antonio Garcia Pascual, chief economist for southern Europe at Barclays, said
that in the past six months there had been large outflows of funds from Spain
and that this needed to be tackled. “If foreign investors continue to reduce
their exposure to Spain at an economically disruptive rate, the country will
require external financial support to manage this adjustment,” he said. Some
€16bn (£13bn) of public sector funds are already being used to prop up Spain’s
banks and Pascual believes another €50bn will be needed this year and next as
banks recognise losses on a wave of property loans.
The need for intervention comes four years after the UK was bailing out its
banks, laden with toxic sub-prime debt. At the time Spaniards were told they had
the world’s best central bank, one that had banned Spanish banks from buying
dubious US mortgage derivatives.
