EPA/RAINER JENSEN
The most probable need of recapitalisation of Spanish banks has institutionalised the discussion about a direct disbursement of European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) money directly to banks and not through governments.
In the case of the recapitalisation of the Greek banks, the procedure used inflated the sovereign debt of the country and undermined the prospects of Greece's return to markets. If the same method is used for the Spanish banks, and the recapitalisation money passes through the exchequer inflating the sovereign debt, it is more than certain that the interest cost Spain will then be obliged to pay for its new debt will reach the sphere of the unsustainable.
For one thing such a prospect will send Spain directly to the intensive care unit, near Greece, Portugal and Ireland.
And nobody wants that within or without Eurozone. The issue has been going around for quite some time now, but last week on the occasion of Bankia's partial nationalisation by the Spanish government, the possibility of direct recapitalisation of Eurozone's banks with EFSF/ESM resources, became again a primary subject matter.
On top of this the now openly discussed probability of a Greek exit from Eurozone, with unpredictable repercussions on the entire western financial system, poses in a much more pressing manner the issue of allowing the EFSF/ESM directly support the capital of Eurozone banks. In such an eventuality it is more than certain that the British and the Americans will take care of their banks in an effective way.
In this way, it is understandable why the European Central Bank and the International Monetary Fund have repeatedly expressed a positive view on institutionalising a direct link between the commercial and investment banks of Eurozone and the EFSF/ESM. In this case the European stability mechanisms will need a banking licence. Consequently this new 'bank' might some time in the future be needing itself more capital at the expenses of Eurozone taxpayers and more so of those in Germany.
That is why Berlin has been vigorously repelling the idea of giving a banking licence to the EFSF/ESM. On top of that once the EFSF/ESM is turned into a bank, there might be more appetite for direct financing also to governments. And again this will weight more on German taxpayers.
Understandably the whole issue of Eurozone banks' recapitalisation will be discussed tonight in the EU summit, along with the other hot issues of the issuance of Eurobonds to finance large infrastructure projects. This could be a first step towards sharing fiscal burdens between the 17 Eurozone countries. Again Germany is refusing to accept even the discussion of such a project.
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