Men in black
With multiple government officials speaking at once, it’s hard to know exactly what Spain is thinking. Having one authoritative voice would help. One thing seems clear: the government is not yet asking for a bailout. Still, some outside help might be inevitable for the country’s banks.
The cacophony was loudest on June 5. Treasury Minister Cristobal Montoro spooked markets by admitting that “Madrid does not have the door to the markets open”. There is no misinterpreting that line, but he was much more ambiguous on Spain’s need for external aid for its banks, other than saying that the lenders’ capital needs was “not a drama”.
The problem is that Montoro’s statement contradicted that of the deputy prime minister, who the same day boldly said that the market was beginning to trust in a country that was assuming its responsibilities. Then, the next day, Economy Minister Luis de Guindos weighed in, reiterating that Spain has no immediate plans to request a European bailout of its banks.
Yet, despite all the noise, the government’s position is starting to become clear. Madrid blames the bulk of its soaring financing costs on market fears over a euro break-up. Although it does admit that the banks will need capital, it doesn’t believe that pumping in billion of euros into the industry would reduce substantially the risk premium. Therefore, it is calling on Europe to make an irreversible commitment to the euro by agreeing to a roadmap to further integration, including a banking union, and asking for some sort of undefined firewall from the European Central Bank. Madrid also favours allowing the future European Stability Mechanism to recapitalise the banks directly, which seems to mean it would tap it if it was the case.
Spain has the potent bargaining chip that it is too big to bail. If it falls, so would the euro, the argument runs. This may be true. But Spain will regret not requesting a bailout for its banks sooner if the crisis accelerates, because its cost will then be much higher. So far, Madrid’s attitude, including Montoro’s lame joke that “the men in black” will not descend in Spain (he was referring to the troika) is not exactly constructive.