Spain, Italy and other European nations to be raided to save Euro

It is in their blood. Bankers are born believing they can risk people’s assets and then come back to ask for financial rescues to pay for the losses that weren’t even theirs.

By LUIS MIRANDA | THE REAL AGENDA | MARCH 26, 2013

What are the real chances that the European Union applies the same medicine to other members nations in an effort to ‘save’ the Euro? According to Jeroen Dijsselbloem, the Dutch chairman of the eurozone, more looting is possible in places like France, Italy and Spain, three of the most heavily burdened countries in the economic bloc.

Dijsselbloem said yesterday that the European technocratic organization would do what is necessary, that includes taking more money from depositors and investors in other countries, the keep the Euro afloat. The statement sent shocks and sounded alarms all over European markets.

The plan revealed by Mr. Dijsselbloem should not be a surprise for those who closely follow what’s going on in the old continent and almost everywhere in the world. The openness of many other countries to apply for the same kind of aid that Cyprus did this week will hold  shareholders, bondholders and even bank depositors hostage to the thirst of the European bankers who in in addition to causing the debt crisis are now demanding that the poorest in the continent pay for the losses of their gambling.

Given the uproar caused by his words, Dijsselbloem’s communication department quickly tried to soften them, but the stone had been already thrown. Now that people all over Europe and the world know of the bankers’ plans, it is likely they will proceed with caution. It is even possible that they delay further raids in other countries in order to calm the markets and the insecurity created by the statement issued on the same say when most details about the so-called Cypriot bailout was completed.

Dijsselbloem has revived fears that awoke while the Eurogroup endorsed and then rectified the confiscation of deposits in accounts with 100,000 euros or more by imposing a new tax. This measure is the first in the history of the European Union.

Banking professor Juan Ignacio Sanz Esade of Spain says it is possible that something similar might happen in Spain in the “medium or long term”. He emphasizes that “there is a great suspicion when trying to recognize our own responsibilities.” For Sanz, Spain’s Bankia is one of the first candidates to suffer the same fate as Litzki and Bank of Cyprus. “Bankia is likely to continue falling if the market remains in this situation” and states that “no banking unit will be strong in Europe until all banks are cleaned up.”

The European currency fell after Jeroen Dijsselbloem, announced that example of Cyprus can be the model for future takeovers anywhere in Europe. “If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?’,” he said. “If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders.”

The problem with this is that the bankers are only partners in crime with the largest banking institutions in the continent, so the public would do a disservice to themselves by believing that their local banks have their best interests in mind. Cyprus is a clear example of that. Neither can depositors or investors trust their politicians, because as it has been seen in Cyprus, they are easy pray for technocrats who use baseless threats to inflict fear on them.

It is important to remember that with the banking takeover in Cyprus two things became apparent. First, no one’s savings or investments are safe in any bank, and second, previous policies that protected savers’ funds according to the amount they had in their accounts have also been ditched. Now, according to Mr. Dijsselbloem, all accounts are fair game. It is expected that private investors and depositors be hit to pay for bad banking debts.

Spain Gets Closer to Requesting European Bailout of Banks

CNBC | MAY 29, 2012

Spanish 10-year borrowing costs neared the 7 percent danger level and Bankia shares hit record lows on Monday after the government, struggling to sort out its finances, proposed putting sovereign debt into the struggling lender.

Prime Minister Mariano Rajoy pinned the blame for the rising borrowing costs—the spread over Germany reached the highest since the euro’s launch—on concern about the future of the single currency.

He again ruled out seeking outside aid to revive a banking sector laid low by a property boom that has long since bust.

“There are major doubts over the euro zone and that makes the risk premium for some countries very high. That’s why it would be a very good idea to deliver a clear message there’s no going back for the euro,” Rajoy told a news conference. “There will not be any (European) rescue for the Spanish banking system.”

He gave no details of bank recapitalisation plans but backed calls for the euro zone bailout fund, which will be in place from July, to be able to lend to banks direct.

Government sources told Reuters Spain may shore up Bankia with sovereign bonds in return for shares in the bank and could use this method to prop up other troubled lenders—moves which would push the country’s debts above the 79.8 percent of economic output which had been expected this year.

“This method has been used by Germany and by Ireland in the past, it is perfectly valid,” a government source told Reuters.

The source said the ECB had not been specifically informed of the plans to inject state bonds into Bankia. A final decision had not yet been made on which option to take.

Bankia’s parent company BFA has asked for 19 billion euros ($23.8 billion) in government help, in addition to 4.5 billion the state has already pumped in to cover possible losses on repossessed property, loans and investments.

Investors increasingly believe weak banks, undermined by the collapse four years ago of a decade-long property boom, coupled with heavily indebted regions, could force Spain to seek an international bailout which the euro zone can barely afford.

Spain Moves to Save Bank, not to Help the People

The Spanish government finds it logical to cut expenditures directed to help the ailing economy while spending $13 billion on Bankia.

AFP | MAY 8, 2012

Spain will swoop in with public money this week to clean up huge bad loans at the nation’s fourth-biggest listed bank, Bankia, the government said Monday.

As news emerged of the impending rescue of Bankia, created in 2010 from a merger of seven savings banks, its executive chairman Rodrigo Rato announced his resignation.

Shares in the bank, which has the industry’s largest exposure to the property market at 37.5 billion euros ($49 billion), closed down 3.26 percent at 2.375 euros on a day which saw Spain’s main share index rise 2.72 percent.

Spain’s banks are still struggling to emerge from a 2008 property bubble collapse, which eliminated millions of jobs and left the financial sector buried in risky assets.

Investors fear the unknown cost of rescuing the industry could derail efforts to stem a rapid rise in Spain’s sovereign debt and avert a bail-out.

“We are finalising a plan to clean up the bank,” said an economy ministry official, referring to Bankia, adding that the scheme would use public money and was likely to be announced by Friday.

The state was considering using contingent convertible bonds, he said. These bonds convert into equity in certain circumstances, for example if a bank’s core capital falls below a set ratio.

The leading daily El Pais estimated Bankia would need 5-10 billion euros ($6.5-13 billion) to repair its balance sheet. Business daily Expansion put the figure at 5-7 billion euros.

Those reports were “not far off track”, said the official, declining however to give any figure.

The bank’s chairman said in a statement he would leave its future in other hands.

“I have decided to pass the baton to a new manager to decide what is best for this entity,” said Rato, who was Spanish economy minister from 1996-2004 and managing director of the IMF until 2007.

Rato said he would propose the former chief executive of Spain’s second-largest bank BBVA, Jose Ignacio Goirigolzarri, as his replacement.

Prime Minister Mariano Rajoy’s conservative government, which swept to power in December, had previously refused to countenance the use of public money to rescue the banks.

Rajoy had already ordered Spanish banks to set aside 54 billion euros in provisions against property-related assets.

But the prime minister said Monday that he would use public money if necessary to avoid a systemic collapse.

“If it were necessary to prompt lending, to save the Spanish financial system, I would not decline to do as all the countries in the European Union have done and inject public money,” he told Onda Cero radio.

“But that would be a last resort.”

The premier said new legislation would be announced on Friday to help banks deal with their assets.

But the Spanish leader said he was “not in favour of a bad bank”, an entity that would regroup bad assets and shift their risk away from commercial banks to the government.

He insisted that if any more public money had to go into the banks, it would not compromise the government’s tough deficit targets.

“Public money will only be used in an extreme situation… this will not affect the public deficit,” he said.

Rajoy is under pressure from eurozone neighbours and financial markets to lower Spain’s deficit from 8.5 percent of gross domestic product last year to 5.3 percent this year and 3.0 percent in 2013.

The International Monetary Fund last month urged Spain to push further ahead with banking reforms.

Clearly targeting Bankia, the IMF said in a report: “To preserve financial stability, it is critical that these banks, especially the largest one, take swift and decisive measures to strengthen their balance sheets and improve management and governance practices.”

The Bank of Spain said the banks’ doubtful loans in February amounted to 143.8 billion euros ($188 billion), rising to 8.15 percent of total credits — the highest ratio since 1994.