Spain's Finance Minister Luis de Guindos arrives to the G-20 summit in Mexico. (Efe)
Ángel Collado 06/19/2012 (06:00 AM CET)
This week could not have started off worse for the Spanish economy. The sovereign debt has hiked at a time when the government asks for calm and patience until the reports by the evaluators, which will give the details of the amount needed for Spain’s troubled banks, will be published on Thursday.
Despite the ‘pro-euro’ victory in Greece on Sunday, market pressure on Spain increased by the beginning of the week and the high levels of the risk premium will make it impossible to avoid a full-fledged intervention, according to some experts.
On Thursday, two independent consultants, Oliver Wyman and Roland Berger, will publish their reports that will specify the total amount and conditions of the aid needed by the Spanish banking sector. The final amount will exceed the original estimates as it will include higher provisions, according to sector experts.
The final negotiations for the Spanish rescue package are expected to take place next Friday when the leaders of Spain, Germany, Italy and France will gather in Rome, as well as at the EU summit on June 28 and 29.
Government seeks support at G-20 summit
Meanwhile, Spain’s Prime Minister Mariano Rajoy and Finance Minister Luis de Guindos are trying to gather more support for the euro and Spain at the on-going G-20 summit in Mexico, while Budget Minister Cristóbal Montoro defended the government’s budget in the Senate to prove that Spain has entered a path defined by austerity and deficit control.
The government holds on to a Europeanist discourse as the Spanish debt crisis deepened, insisting that the role of the European Union is crucial in order to respond to the problem.
The centre-right government believe that Spain does not deserve that its debt is being discredited, given the efforts the country has made over the last five months to get its economy in order, and it insists it is time to defend the euro.
Also, while waiting for the reports on Thursday, the cabinet members avoid to answer the suggestions by the International Monetary Fund, for instance, to increase value-added taxes.
Instead, they stress, as De Guindos did yesterday, that the IMF has praised the general lines of Rajoy’s economic policies, such as the budget cuts, the labor reform and the financial sector reforms.
The government now trusts that the G-20 summit will transmit a clear message in favor of correcting the imbalances and the economic reforms in Europe and the rest of the world to avoid a period of further economic slowdown, which is also beginning to affect the United States and the emerging economies, according to De Guindos.
Sovereign debt, bank debt
Although the meeting between US President Barack Obama and the leaders of the EU was canceled, Rajoy urged in one of the first sessions of the G-20 meeting that the link between bank risk and sovereign risk must be broken, which has shown to be “tremendously damaging.”
The prime minister also asked the Eurozone for a precise agenda in order to create a fiscal union. Such a union, Rajoy said, should include one single supervisor over the financial system, a joint deposit guarantee fund and a joint mechanism for restructuring financial entities.
The Spanish government was in favor of European aid injections directly to the banking sector without going through the government or government funds, in order to avoid that Spanish sovereign debt would be affected affected, which was opposed by several of the Eurogroup members led by Germany.
In the G-20 session, Rajoy said the problem occurs when bank debt and sovereign debt is linked, however, it is still not known if this will be included in the final summit declaration.
“More Europe, more euro”
“The solution to the crisis comes through more Europe, more euro, more [EU] structural reforms and more budget stability,” said Budget Minister Montoro in the Senate.
In this clamor for European integration, the budget minister asked for the European Central Bank to act.
“[The ECB] should respond firmly and with reliability to the pressure from the markets that still try to put obstacles in the development of the European project,” he said.
It is the most clear accusation that a member of Rajoy’s government has made towards these ‘markets’ that are putting pressure on the Spanish debt.
Finance Minister De Guindos repeated the same ideas in Mexico: the Spanish government has pushed forward basic reforms, such as the labor reform, and it has adjusted its accounts, now the turn has come to the European Union to open the path towards a fiscal and monetary union in order to face the joint problem which the danger of the resession becomes worse in the whole Eurozone.
This article was translated and edited by Stina Lunden.
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