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Reuters: Spain could request a bailout for its banks this weekend; IMF expected to put Spanish bank recapitalisation needs at €40bn

08 Jun 2012

Reuters reports this morning that, according to two senior EU officials and a senior German official, Spain will request external financial aid this weekend to help prop up its banking sector. Eurozone finance ministers are expected to hold a conference call on Saturday to finalise the amount of the package, after which an announcement will be made. Expansión notes that, unlike previously, the Spanish government has not denied the reports, with a spokesman saying, “The government doesn’t comment on speculations.”

El País notes that, in its report due to be published on Monday, the IMF is to put the financing needs of Spanish banks at €27bn in a basic scenario and up to €37bn in an adverse scenario. However, sources who have seen the draft report say that the IMF is to recommend a fresh capital injection of at least €40bn. A separate article in the paper notes that two Spanish nationalised banks, CatalunyaCaixa and Novagalicia, will need an extra €9bn in state funds to comply with the stricter rules on provisions adopted by the Spanish government earlier this year.

Fitch last night downgraded Spain’s credit rating by three notches to BBB, citing the potential cost of recapitalising and restructuring its banking sector as the main concern. The agency suggested the cost of aiding the banking sector would be between €60 and €100bn (in a worst case scenario), adding that Spain is particularly vulnerable to contagion from Greece due to its high level of debt owed to foreign sources.
Open Europe research FT CityAM WSJ Times Süddeutsche Reuters EUobserver El Mundo Cinco Días Expansión IHT Les Echos El País El País 2 Welt Independent EUobserver Guardian: Jenkins Economist: Leader Economist Economist: Charlemagne Economist 2 FT: Liqun & Jin FT: Kuper WSJ Review & Outlook WSJ: Cline Telegraph: Evans-Pritchard Expansión

Cameron: Britain’s place is “firmly within the EU”;
Mats Persson: Britain should put its weight behind Berlin, not Paris, in the euro crisis
At a ‘town-hall’ style debate in Berlin yesterday, David Cameron said he saw Britain “firmly within the EU”, but rejected a European identity “imposed top-down from Brussels.” At a joint press conference with Chancellor Angela Merkel later, Cameron said, “Because we are not in the single currency…I wouldn't ask British taxpayers to stand behind the Greek or Spanish deposits”, adding, “I understand why single currency countries have to look at deeper integration. I will make sure that Britain's interests, particularly in the single market and the openness and fairness of the single market are protected. That is key for Britain.” The Times notes that Cameron did not repeat his previous calls for a larger fiscal backstop for the eurozone, in deference to Merkel.  

Meanwhile, also speaking yesterday, Chancellor George Osborne claimed, “A reshaped relationship with Europe” that would imply “any transfer of power from this country, transfer of competence or transfer of sovereignty from this country to the European Union, then there will be a referendum.”

In an op-ed in the Telegraph, Open Europe Director Mats Persson argues that the UK should strengthen ties with Germany and Angela Merkel and back a vision of Europe based on sound money and free trade, rather than calling for the Eurozone to move to ‘fiscal union’. He argues, “Having spent a decade in opposition calling for a more dynamic European economy and a slimmed-down, more democratic EU, the Conservative leadership’s cocktail of Eurosceptic fiscal federalism is not only intellectually inconsistent but, in the key debate about the future of the EU, needlessly aligns the UK with European federalists and socialists such as François Hollande.”

Mats is also quoted in Le Figaro as saying that “Osborne and Cameron see the eurozone crisis as a threat to the British economy and to their re-election in 2015…A referendum looks impossible before the general election, but there’s no doubt that they will have to think hard about introducing one in the next electoral manifesto.”
CityAM Times Telegraph Mail Mirror Independent Telegraph 2 Times Mail 2 FT 2 CityAM 2 Welt Süddeutsche FAZ Telegraph: Persson Le Figaro Times: Webster Times: Leader Times: Rees-Mogg Mail: Leader CityAM: Owen

EU ministers move to give governments more power to re-instate border checks
EU interior ministers have agreed to give national governments more power to temporarily re-introduce internal border checks within the passport-free Schengen area. Under the compromise text adopted yesterday, if a Schengen country fails to control the area’s external borders properly, the European Commission can recommend that neighbouring member states temporarily re-instate border checks.

The ministers have decided by unanimity to keep the limit for the re-introduction of border controls in the event of serious threats to internal security at 30 days, contrary to what the Commission had proposed last September. They also agreed to change the legal basis of the Commission’s proposal for a reform of the Schengen evaluation mechanism – designed to verify the correct application of Schengen rules. The move means that the proposal is no longer subject to co-decision with the European Parliament.   
Open Europe research Council of Ministers conclusions EUobserver WSJ FAZ Le Monde Les Echos

Former Greek PM warns of “vortex of self-destruction” if Greece leaves the euro
The FT reports that former Greek Prime Minister Lucas Papademos has warned that Greece would enter a “vortex of self-destruction” if it left the euro. Papademos suggested inflation could hit 50% while real national income could fall by a further 20%. Separately, Syriza leader Alexis Tsipras said yesterday that if he wins the next election he will not fire any civil servants, scrapping the current pledge to cut 150,000 public sector jobs by 2015, agreed under the bailout programme.

Kathimerini reports that the Commission is increasing the pressure on Greece to wind down some of its banks, including ATEbank, its fifth largest lender. No decision will be made until after the 17 June elections, although the Commission could limit Greece’s ability to keep its banks afloat using the restrictions on state-aid if progress is not made soon after. Separately, China’s sovereign wealth fund, CIC, has said that it sees an increasing chance of a eurozone break-up and has reduced its exposure to the bloc. 
Open Europe research Kathimerini Kathimerini 2 FTD Handelsblatt FT WSJ WSJ 2

The Times reports that Eurogroup Chairman Jean-Claude Juncker said yesterday that “for strictly national reasons and not out of any continental romanticism, the United Kingdom will become a member of the eurozone.”

In a speech yesterday, Italian Prime Minister Mario Monti admitted that his technocratic government was losing support, adding “I cannot deny that we could have done more and better.”
FT Corriere della Sera: Alesina and Giavazzi

City AM reports that credit rating agency Fitch has warned that the European Commission’s proposals to wind down failing banks will “weaken state support in the long term”, which is likely to mean a round of downgrades for European banks and an increase in the cost of their debt.
City AM

Leaked correspondence reveals setbacks for EU diplomacy on Iran
In a letter to Iranian diplomat Ali Bagheri leaked to the Guardian, Helga Schmid – one of the deputies of EU Foreign Minister Baroness Catherine Ashton – laments that Iran has refused to discuss details of potential UN monitoring on its nuclear programme, and is only open to negotiations on protocol during an upcoming round of talks in Moscow. EUobserver reports that a letter from Iran’s negotiator Saeed Jalili to Ashton was also leaked to the Mehr news agency on Wednesday, in which Iran accused the EU of wasting time.
Guardian EUobserver

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