BRUSSELS — As the Spanish government took further measures Friday to shore up the country’s banking sector, the European Commission injected a new dose of gloom by warning that Madrid was likely to miss its deficit-reduction targets for this year and next by wide margins.
Spain was headed for a budget deficit of 6.4 percent of gross domestic product this year and 6.3 percent next year, according to the commission’s spring economic forecasts.
That was far beyond the 3 percent maximum allowed under European Union rules and exceeds the Spanish government’s own target of 5.3 percent for 2012.
“For Spain, the key to restoring confidence and growth is to tackle the immediate fiscal and financial challenges with full determination,” Olli Rehn, the E.U. economic and monetary affairs commissioner, told reporters.
“This calls for a very firm grip to curb the excessive spending of regional governments.” The commission also forecast that Spain would be the only euro zone country to remain in recession next year.
“This is the strongest indication yet that austerity is failing in Spain,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy, a consulting firm in London that specializes in sovereign credit risk. “Spain stands out like a sore thumb.”
Borrowing costs for Spain have risen as concern mounts about its finances. The problems in Spain, along with the political turmoil in Greece following an inconclusive election, have stoked a renewed sense of crisis in Europe.
On Friday, the Spanish government ordered banks to set aside another €30 billion, or $39 billion, in provisions against bad loans.
The government also paved the way for further state aid to the most troubled banks, saying any bank that was unable to meet the new provisioning rules would be able to borrow the additional money, in the form of state-backed convertible bonds carrying a 10 percent interest rate.
The government also said that the banks would transfer their riskiest assets to state-guaranteed asset management companies to help speed up the sale of real estate assets the banks hold.
The government in February had ordered banks to set aside €50 billion in provisions. The government said the measure announced Friday would ensure that banks had provisions of 52 percent of the value of loans made for land purchases.
Mr. Spiro said the announcement “provides a measure of reassurance that Spain is coming to grips with its banking troubles.”
But he added: “This is not the definitive clean-up framework that the market is clamoring for.” Spanish banks are sitting on a combined €180 billion of troubled assets.
The savings banks, or cajas, have been particularly hard hit by the downturn, having financed much of a decade-long real estate boom that evaporated with the world financial crisis.
In a sign of the crisis enveloping Spain, the government seized control of Bankia, the country’s largest real estate lender, on Wednesday.
Bankia’s collapse has raised broader concerns about regulatory oversight, as well as the extent to which banks and the Bank of Spain have played down the risk posed by real estate loans amid a deepening recession.
To help ease such concerns, the government also said Friday that it would ask two independent firms to audit the real estate portfolios of the banks. The government did not confirm on Friday how much Bankia’s recapitalization would cost.
Analysts believe the amount may range from €7 billion to €10 billion. Luis de Guindos, the economy minister, estimated that, overall, the additional state funding needed to help ailing cajas meet the stricter provisioning rules would not exceed €15 billion.
Prime Minister Mariano Rajoy, who took office in December, had pledged that taxpayers would not pay for bank failures.
Christine Lagarde, the managing director of the International Monetary Fund, strongly endorsed the measures announced Friday by the Spanish authorities.
She called them “an effective response to the vulnerabilities of the banking system” and said their “full implementation” would “help bolster confidence and support the economy’s return to growth.”
nytimes.com
Spain was headed for a budget deficit of 6.4 percent of gross domestic product this year and 6.3 percent next year, according to the commission’s spring economic forecasts.
That was far beyond the 3 percent maximum allowed under European Union rules and exceeds the Spanish government’s own target of 5.3 percent for 2012.
“For Spain, the key to restoring confidence and growth is to tackle the immediate fiscal and financial challenges with full determination,” Olli Rehn, the E.U. economic and monetary affairs commissioner, told reporters.
“This calls for a very firm grip to curb the excessive spending of regional governments.” The commission also forecast that Spain would be the only euro zone country to remain in recession next year.
“This is the strongest indication yet that austerity is failing in Spain,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy, a consulting firm in London that specializes in sovereign credit risk. “Spain stands out like a sore thumb.”
Borrowing costs for Spain have risen as concern mounts about its finances. The problems in Spain, along with the political turmoil in Greece following an inconclusive election, have stoked a renewed sense of crisis in Europe.
On Friday, the Spanish government ordered banks to set aside another €30 billion, or $39 billion, in provisions against bad loans.
The government also paved the way for further state aid to the most troubled banks, saying any bank that was unable to meet the new provisioning rules would be able to borrow the additional money, in the form of state-backed convertible bonds carrying a 10 percent interest rate.
The government also said that the banks would transfer their riskiest assets to state-guaranteed asset management companies to help speed up the sale of real estate assets the banks hold.
The government in February had ordered banks to set aside €50 billion in provisions. The government said the measure announced Friday would ensure that banks had provisions of 52 percent of the value of loans made for land purchases.
Mr. Spiro said the announcement “provides a measure of reassurance that Spain is coming to grips with its banking troubles.”
But he added: “This is not the definitive clean-up framework that the market is clamoring for.” Spanish banks are sitting on a combined €180 billion of troubled assets.
The savings banks, or cajas, have been particularly hard hit by the downturn, having financed much of a decade-long real estate boom that evaporated with the world financial crisis.
In a sign of the crisis enveloping Spain, the government seized control of Bankia, the country’s largest real estate lender, on Wednesday.
Bankia’s collapse has raised broader concerns about regulatory oversight, as well as the extent to which banks and the Bank of Spain have played down the risk posed by real estate loans amid a deepening recession.
To help ease such concerns, the government also said Friday that it would ask two independent firms to audit the real estate portfolios of the banks. The government did not confirm on Friday how much Bankia’s recapitalization would cost.
Analysts believe the amount may range from €7 billion to €10 billion. Luis de Guindos, the economy minister, estimated that, overall, the additional state funding needed to help ailing cajas meet the stricter provisioning rules would not exceed €15 billion.
Prime Minister Mariano Rajoy, who took office in December, had pledged that taxpayers would not pay for bank failures.
Christine Lagarde, the managing director of the International Monetary Fund, strongly endorsed the measures announced Friday by the Spanish authorities.
She called them “an effective response to the vulnerabilities of the banking system” and said their “full implementation” would “help bolster confidence and support the economy’s return to growth.”
nytimes.com
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