Photo: Spanish Economic Troubles
The Spanish government denied on Sunday that any “pressure” is being exerted by German Finance Minister Wolfgang Schauble on Economy Minister Luis de Guindos to get Spain to ask the European financial stability fund for money to shore up the Spanish banking sector, while Berlin reiterated its confidence in the measures that Madrid is taking to deal with its fiscal woes.
Sources with the Spanish government told Efe that “there is no pressure” being exerted by Germany, a reaction to a report in Germany’s weekly Der Spiegel magazine, and they added that the meeting De Guindos and Schauble held last Wednesday focused mainly on the European banking union.
The proposal made Saturday night by Prime Minister Mariano Rajoy to create a European fiscal authority to harmonize member states’ fiscal policies and take charge of handling the European debt was another of the issues the Spanish and German ministers discussed, the sources said.
Der Spiegel reported Saturday that Schauble pressured De Guindos for Madrid to ask for help from the European Financial Stability Facility, or EFSF, with the aim of obtaining resources to strengthen the national bank’s capital.
However, officials with the German Finance Ministry told Efe that the government of Chancellor Angela Merkel has “total confidence” in and “great appreciation” for the reforms already implemented or in the process being implementated by Rajoy.
The latest issue of Der Spiegel says, without specifying its sources, that Merkel and her finance minister are pressuring Spain to turn to the EFSF for a bailout, given that the Spanish central bank needs between 50 billion and 90 billion euros (between $40 billion and $72 billion) to reinforce its capital.
Germany rejects the possibility of the banks directly receiving help from the EFSF without going through the member states, a formula that the European Commission, the International Monetary Fund and several countries - among them Spain and the United States - support.
Meanwhile, the spokesman for the governing Popular Party on the Spanish Parliament’s Foreign Affairs Committee, Jose Maria Beneyto, sparked controversy on Sunday by saying in an interview with Efe that Spain’s possible economic intervention is a scenario that “cannot be excluded.”
He said that that would not be an “apocalypse” for the country because in Portugal and Ireland such financial intervention had occurred without producing a collapse.
But he warned that such a scenario would force the country to adopt harsh measures such as “lowering the salary of officials or (cutting) pensions,” but also “reviewing the autonomous state ... which is the most expensive thing” Spain has.
In response to Beneyto’s remarks, the parliamentary spokesman for the United Left, Jose Luis Centella, told Efe that an EU intervention in the Spanish economy would make life “much harder” for Spaniards because it would bring with it a new reduction in salaries, fewer social rights and would do away with Spain’s current configuration as a state comprised of autonomous regions.
All this comes after a week marked by turbulence in the financial markets, in which the Spanish country-risk premium finished at 536 basis points and the stock market fell to 6,000, where it had stood in April 2003, and before Spain resumes this Thursday issuing bonds after 15 days without facing the market.