It’s no surprise that Spain’s troubled banking sector is having difficulties, but those problems have been compounded of late as jubilation from European Central Bank liquidity measures wears off.A number of headlines recently have made investors even more jumpy, as even the Spanish government starts to admit that the financial sector is up to its neck in hot water.
First, Spain’s Central Bank Governor Miguel Angel Fernandez Ordonez told reporters yesterday that banks could need more capital if economic conditions continue to deteriorate. With the government doing all it can to consolidate the country’s 40-odd banks to minimize bad loans, this would essentially amount to either a state- or EU-led bailout.
Ordonez’s statement comes despite assurances to the contrary late last month from Spanish Finance Minister Luis de Guindos, who said the country has no plans nor need to seek EU funds to prop up its financial sector.
Further, The Telegraph’s Ambrose Evans-Pritchard notes today that the undercurrent of angst directed at Northern Europe and its imposition of austerity measures appears to be growing:
Articles calling for Spain to withdraw from EMU – or at least exploring the idea – are no longer rare. They are appearing every day…What is striking is the response on the comment threads of such pieces. My impression over the last month is that a large bloc of informed Spanish opinion has reached the conclusion that EMU is dysfunctional, and increasingly destructive for Spain. Many posters seem extremely well-informed, using terminology such as “debt-traps”, “internal devaluations”, and “relative unit labour costs”.
Other signs that Spain might be in trouble have been compounding pressure on the troubled banking sector. Not only have investment banks published a string of research reports talking about the fragility of the Spanish banking sector, but poor demand at a sovereign debt auction last week and rising bond yields in the secondary market recently (particularly yesterday when the 10-year momentarily hit 6.00 per cent) show that concerns are deep-seated and likely to increase in the absence of new policy.