Europeans Agree to Use Bailout Fund to Aid Banks
29/06/2012 11 comentarios
(…..) Deal reached in Brussels was particularly important for Mr. Rajoy, who had resisted German pressure over the past two weeks to accept tougher bailout terms and can now return to Madrid with agreement in hand that eases concerns over Spain’s creditworthiness by ensuring the rescue will not add to the country’s sovereign debt, as the funding will flow direct to the banks. Spain also ensured that, when its banks are bailed out by the eurozone rescue fund, the fund will not be treated as a preferred creditor. This prospect had deterred some private investors since, in the event of a default, they would have faced proportionately bigger losses. José Maríá Méndez, director general of the association of Spanish savings banks, or cajas, described European deal as “very positive” for Spain. “It now seems to me a fair agreement between European partners that sets the foundation for a banking union”, he said at a conference on the euro debt crisis in the northern Spanish city of Santander. The deal, however, is less favorable for Italy than for Spain, according to Nicholas Spiro, managing director of Spiro Sovereign Strategy, a London consulting firm that assesses sovereign debt. “Mr. Monti only managed to extract a commitment the rescue funds will, if called upon by Rome, purchase limited amounts of government debt provided Italy sticks to its current reform program”, Mr Spiro wrote in a note to investors. “What’s more, any bailout loans to Italy would still be given seniority status”. Monti, an experienced European player and former European Union commissioner, hailed the agreement as a “very important deal for future of the E.U. and the eurozone,” adding, “it is a double satisfaction for Italy.” He had argued that other eurozone leaders must find ways to help “virtuous countries” like his own and Spain, which were fixing their economies and were solvent, but were under speculative market pressure. Countries that request bond support from the rescue fund will have to sign a memorandum of understanding setting out their existing policy commitments and agreeing to a timetable. But they will not face the intrusive oversight of a “troika” of international leaders to which Greece, Ireland and Portugal have been subjected. Eurozone “will be strengthened by this”. Italy has no immediate plans to ask for help from existing funds, he added, on assumption that bond yields would ease after this agreement. The summit outcome was welcomed by the Institute for International Finance, a bank lobby group, though its market monitoring group issued a statement calling for more detail. “The Signal of intention to establish a single supervisory mechanism creating the possibility of recapitalizing banks directly is encouraging”. “Likewise, the indication that EFSF/ESM funds for Spain’s banking sector would not have seniority over private claims reflects an important recognition that such seniority would undermine the objective, breaking the negative feedback loop, restoring confidence in euro area sovereign debt markets”. “Nevertheless, such statements require concrete, immediate steps to give confidence to all parties that these directions will be fully realized”, the statement added.