Rescue on the horizon? Possible scenarios of our exit from the debt crisis

Rescue on the horizon? Possible scenarios of our exit from the debt crisis

  • The markets do not rule out that the Spanish economy needs to be rescued, but what are the options that are being considered?
  • Several analysts explain the four possible scenarios for Spain: leaving alone afloat; bank rescue; intervention of the Troika; some indirect help
  • With the risk premium at maximum, the recapitalization of Bankia in question and the distrust of investors, Spain is at the most decisive moment.
  • GRAPH : The figures that weigh down on Spain.

Banco de España

Stock image of the headquarters of the Bank of Spain. JORGE PARIS

In these moments, the possibility that Spain needs a rescue is only ruled out by the Executive of Mariano Rajoy. On Monday, at a press conference in Genoa, the President of the Government stated categorically that there would be “no rescue with European funds from Spanish banks”. Although this Friday both Spain and the US have agreed that banks have to recapitalize without going to aid, and the IMF has denied that it is preparing a rescue plan for Spain, economists do not dare to put their hands on the fire. Not even the most optimistic discard the intervention of the country.

The so-called ‘debt crisis’ lasts three years . It seemed to dissipate at the end of 2011, when the ECB lent cheap money to the banks that they invested in national debt. This maneuver did nothing more than plug the problems and, in the Spanish case, enlarge them, the analysts agree.

Now, in an environment of global crisis, with Greece with a foot out of the euro and foreign investors escaping from Spain, explodes the scandalous recapitalization of Bankia, which undermines the confidence of the country (raising the risk premium to maximum and reducing margins of the stock market activity at levels of a decade ago).

 

Spain’s economic credibility maintains three open fronts: market mistrust – with a risk premium at “unsustainable” levels and a flight of investors -, the banking situation – with foreign auditors measuring the banking hole – and a recession rampant. With this scenario, where is the exit? We analyze four possible scenarios.

Spain leaves the quagmire alone

Economists see the possibility that we save ourselves as the “most desired” but “the most difficult” . Federico Steinberg (professor of the Autonomous University of Madrid and researcher of the Elcano Royal Institute) links an exit afloat without aid only to the permanence of Greece in the euro since the foreign auditors that these days dive in the Spanish banking do not find a bulky hole in toxic assets – which some sources already indicate as over 80,000 million euros . That alone would calm the markets.

We are not Greece, but we are more and more like

“If, as the Government says, it is true that there is money in the Treasury to cover the next maturities of the debt and the recapitalization of Bankia takes place in an orderly manner , the rescue could be avoided ,” says Steinberg.

Other economists believe, however, that ” alone we do not go out “. The professor of the UNED Fernando Pampillón is one of those who think that we should not look at Greece, but “ourselves” and is critical of the measures that the Government is taking , as well as its communication strategy. Among its recipes to try to leave by our own foot of the crisis enumerates to increase the income , looking for those who do not pay, either because they have tax breaks (and talks about the companies of the Ibex ) or fraud; raise taxes on gasoline and VAT , limit inefficient spending … Even so, Pampillón does not know if it is already possible to avoid a rescue: “The image abroad is painful, we are not Greece, but we are more and more like

European aid to banking

The Government of Mariano Rajoy has requested in recent weeks an intervention to the ECB, to calm the markets and the Spanish banking , suffering from an overexposure to the national debt and a large portfolio of toxic real estate assets. Internally, the government approved Thursday the decree law for a new financial reform – the fourth in two years – and faced awkwardly a billionaire recapitalization of Bankia, trying to put it through the back door back to the ECB .

The organism that presides over Mario Draghi did not admit the strategy of Spain to save Bankia, that consisted of that the State injected public debt in the exchangeable entity in the European bank.

The EU then raised the possibility of allowing rescue funds to inject money into banks, without the need for countries to intervene. Hours later, Olhi Reihn warned that this possibility is not allowed by European legislation.

The consulted analysts emphasize that with the law in hand this option is not possible and remember that a change in the legislation in the medium term is not viable, given the opposite position of Germany, which does not contemplate another rescue other than the intervention of the country and your accounts.

Rescue of Spain

The third option is precisely to go to the European Stability Mechanism (ESM) , which replaces the rescue fund as of July 1, following in the footsteps of Greece, Ireland and Portugal. It is the option that the Government resists, due to the loss of sovereignty that this entails.

An economic rescue means leaving the markets

“An economic rescue means leaving the markets,” Steinberg recalls, “and it is the Troika (IMF, ECB and CE) that gives you the money and imposes the conditions on you, if you do not comply, you go bankrupt.” It is to be expected, analysts point out, “an agenda of severe cuts”. And they cite: tax increases (IRPF or VAT), reforms of the State administration, reduction of pensions, more labor reform …

The question is whether the ESM , capitalized with 500,000 million euros, has enough money to rescue a country like Spain. The NYT newspaper says that a rescue to Spain would consume more than three quarters of the existing funds. Spanish analysts warn of a possible domino effect on Italy, whose fall would cause it to slump.

Is the rescue on the horizon? “Not right now,” says Federico Steinberg. “Although I do not rule it out, if the situation evolves negatively, at this moment, due to prudence, we must think that there is still money in the Treasury, although if Greece leaves the euro it can not be ruled out.” Pampillón, on the other hand, has it clear: “Rescue yes, and soon, and either we fulfill your demands (those of the troika), or we will not see a single euro”.

Covert or partial aids

Another of the outputs that have been considered lately is the request for help from the International Monetary Fund (IMF), which would be disguised and never named as a bailout. Apparently, the director, Christine Lagarde , is not against a unilateral intervention, but emerging countries of the IMF do not want another way to go hand in hand with the ECB and with the European Commission on rescues. This Thursday, however, Lagarde claimed that Spain had not claimed any direct aid to the IMF.

Experts also rule out aid through the back door of the ECB , which has already said that more debt purchase does not, that this is not the way out of the crisis.