MADRID (Reuters) - Spain will not rush to seek external aid to finance its debt, Economy Minister Luis de Guindos said on Saturday, adding that the country’s banks would need 60 billion euros to clean up the toxic property assets on their balance sheets.
De Guindos said deficit-cutting efforts would remain a priority for the government, which next week presents its draft budget plan for 2013, new structural reforms and the results of stress tests on its wobbly banking sector.
Spain is at the centre of the euro zone debt crisis, now in its third year, and investors believe a high deficit, soaring debts, a banking sector brought low by the bursting of a real estate bubble and a deepening economic contraction will eventually force Madrid to seek more external help.
The government sought a 100 billion euro ($129 billion) European credit line to recapitalise troubled lenders in June. It has been in talks for weeks over a bond-buying programme from the European Central Bank (ECB) and the euro zone rescue funds which it is hesitating to request because of concerns over the strings attached.
“This is not about rescuing Spain but about making sure that the euro currency project is a project for everybody. Spain will do what it has to do but with no rush,” De Guindos said when asked about the possibility of seeking this assistance in the next few days.
But with mounting funding needs, big repayment humps looming and an economy which, according to De Guindos, is set to contract by around another 0.4 percent in the third quarter of the year, Spain may have to move sooner rather than later.
As Reuters reported first last month, Spanish officials have been talking discreetly to the European Commission since at least early August about possible conditions and supervision for a precautionary programme that would keep Spain in capital markets and bring down its borrowing costs.
Sources with knowledge of the matter told Reuters that Spain was considering speeding up a planned rise in the retirement age and skipping a 3 percent rise on pensions payments linked to inflation to comply with European demands.
Labour Minister Fatima Banez said on Saturday that the government was not planning to accelerate the entry into force of the raising of the retirement age to 67 from 65, currently scheduled to take place over 15 years. On Friday, Prime Minister Mariano Rajoy told journalists in Rome the pensions would likely be revised up next year.
While some sources suggest Madrid could make an aid request along with the budget package to pre-empt a credit review by ratings agency Moody‘s, which might otherwise downgrade Spanish debt to junk status, EU officials said they did not expect Prime Minister Mariano Rajoy to seek an assistance programme before a regional election in his native Galicia on October 21.
EU paymaster Germany said on Friday that Spain did not need a European bailout, contrasting with French pressure on Madrid to avail itself of ECB help.
De Guindos also confirmed that he expected the results of an independent stress test of Spain’s banking sector conducted by consultancy Oliver Wyman to be in line with preliminary estimates released in June of 60 billion euros.
The final bill could be reduced because some lenders will likely manage to find capital on their own on the market, while holders of hybrid capital instruments are being pressured to take a haircut on their investments. Assets will also be transferred to the so-called “bad bank” the government is setting up to take over and later sell off toxic assets.
It will however not be possible to allocate any unused money from the 100 billion euro credit line for other purposes, such as financing the state, De Guindos added.
“The credit line we’ve got is strictly for the banks... You’ll see the results of the Oliver Wyman report at the end of next week. I believe that they will not be far from the maximum amount Oliver Wyman showed in its first estimates, which were of around 60 billion euros,” De Guindos told journalists after meeting officials of the ruling People’s Party in Madrid.
Several lenders, including state-rescued Bankia and systemic lender Popular, are expected to be especially in focus.
A banking source told Reuters on Saturday that Oliver Wyman had told the Spanish government it would not take into account tax credits when determining the final capital needs, confirming a report in daily El Pais.
That could increase Bankia’s needs by 6 billion euros, pushing them to 29.5 billion euros in total, including 9 billion euros of cash already injected, while the three other nationalised banks - CatalunyaCaixa, Novagalicia and Banco de Valencia - would also see their capital shortfall increase.
“The issue of tax credits is still under discussion but they are very likely to be left out of the final numbers,” said the banking source, adding that any figure was preliminary.
Banco Popular, whose credit rating was cut to junk status by Fitch on Friday, is set to register the biggest capital needs of the banks that have not received public money yet, other banking sources said.
Two of the sources said the shortfall would be of at least 3 billion euros while Spanish newspaper El Mundo said on Saturday the stress tests would show needs of 3.7 billion euros.
Sources from the bank however dismissed these findings and said the needs would be less than 1.95 billion euros and could be addressed without requesting public help.
El Mundo also said Banco Mare Nostrum, which said earlier this month it was in talks with Popular about a possible merger, would need 1.9 billion euros.
The Bank of Spain, in reaction to these reports, said in a statement on Saturday that the final results of the stress tests would be published on September 28. ($1 = 0.7699 euros)
Additional reporting by Blanca Rodriguez and Jesus Aguado; Editing by Hugh Lawson and Pravin Char