Cristóbal Montoro, the budget minister, rejected suggestions that Spain could turn to the EU to prop up its banking system, saying the liquidity provided by the European Central Bank was already substantial. Despite a sharp sell-off in Spanish sovereign debt and equities, senior EU officials insisted there had been no discussions about assisting Madrid with aid from the eurozone’s €500 billion rescue fund. Instead, Brussels was pushing the government to implement the tough reforms already announced.
Investors have long criticised the lack of budget discipline in several of Spain’s autonomous regions, and questioned the government’s ability to restore fiscal order. Now they are also worried about the need to recapitalise former savings banks crippled by bad property loans.
Miguel Angel Fernández Ordóñez, the Spanish central bank governor, said in a speech on Tuesday that banks would need extra capital if the economy worsened more than predicted. He described pushing through the financial sector reforms enacted since the creation of the official bank rescue fund in 2009 as “like doing a double job on a ship in trouble – at the same time as ordering the evacuation of the passengers it was necessary to repair the lifeboats”.
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