Open Europe Blog

We assume many Spaniards are growing more and more frustrated with the fact that they have to dig into the websites of foreign governments and parliaments to find out details of the bank bailout their country is set to receive. After the ‘confidential’ EFSF proposed timeline we took from the website of the Dutch finance ministry and analysed on our blog, new information emerged from the dossier the German finance ministry prepared from German MPs ahead of today’s vote on the Spanish bank bailout in the Bundestag (available here).

The 139-page dossier includes a “Master Financial Assistance Facility Agreement” – never seen before – between Spain, the Spanish national Orderly Bank Restructuring Fund (FROB), the Bank of Spain and the EFSF. The draft agreement confirms that, as expected, once the eurozone’s permanent bailout fund, the ESM, takes over, the loans Spain receives will not become senior to Spanish debt held by private investors.

However, the most interesting part (see page 78 of the dossier) concerns the fact that, in principle, Spain could request that part of the €100 billion rescue package be used for purposes other than bank recapitalisation – including direct loans to the Spanish government and purchases of Spanish debt on both the primary and the secondary markets.

In other words, if it turns out that Spain does not need the entire amount to sort out its troubled banking sector – which the government has suggested will be the case (although we don’t agree, see here) – it could, for instance, ask its eurozone partners to use the cash left to buy Spanish bonds and try to keep its borrowing costs down.

This would imply a revision of the Memorandum of Understanding (MoU), which would almost certainly include tougher conditions – probably directly relating to government spending and reforms as well. All very speculative at the moment, but it’s still interesting that the agreement opens for Spain seeking something closer to a fully-fledged bailout deal.

A European Commission spokesman has just told reporters in Brussels,

“The up to €100 billion, which the eurozone has undertaken to provide to Spanish banks is to do just that, it is only for that purpose and not for any other.”

This seems to be only a half-truth, though. In fact, the draft agreement does indeed specify that, for the moment, the entire amount is being provided in the form of a “Bank Recapitalisation Facility”. However, the document also establishes that Spain can make an official request to move part of the money to another facility, provided that the combined total does not exceed €100 billion. 

In any case, the bailout agreement will be wrapped up by eurozone finance ministers in their conference call tomorrow. Meanwhile, the day has not started well for Spain. In this morning’s debt auction, almost €3 billion of medium and long-term debt was sold, but with higher interest rates and significantly lower demand than in the previous auction. The interest rate on Spain’s ten-year bonds reached above 7% again – a level widely seen as unsustainable.  

All this happened while Spanish Treasury Minister Cristóbal Montoro (in the picture) was telling MPs that “There is no money in the public coffers to pay for services.” As usual, you can follow the latest developments of the eurozone crisis via our Twitter feed @OpenEurope.

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