Spain Denies Bailout Rumours

17:38 Wednesday 6th June 2012
Drive BBC Radio Cambridgeshire

CHRIS MANN: Another busy day in the Eurozone. New rules have been put forward to control the way governments deal with failing banks. The European Commission says regulators should have the power to make shareholders accept responsibility for losses. Meanwhile, the credit ratings of six German and three Austrian banks have been downgraded by the agency Moody’s, and Spain has denied reports it’s seeking an immediate bailout from Eurozone funds, as the financial crisis looks ever more set to engulf that country. Our business reporter Adam Kirtley joined me a short time ago, and first, I asked him if things were any clearer today. (TAPE)
ADAM KIRTLEY: No Chris really. They’re not. And today there is this confusion about whether Spain, big economy, much bigger than Greece, will or will not need a bailout. No, says its government today. The senior Government Minister has said, actually it was yesterday he said, we deny we need a bailout. However, cracks are showing. There is huge fear that there are many small and medium sized Spanish banks called chahiyes, that have lent really toxically with the Spanish boom, that are going to go under, unless they’re bailed out. Now whilst the Spanish Government does have many billions, around 44 billion euros in reserve to meet its own obligations, there is little doubt that if suddenly several of its banks were to need state aid, they wouldn’t be able to get it. And such is the fear about that, that the markets effectively won’t lend Spain any more money just to throw at its banks. So we are in a state of confusion about just where we are with Spain, and what the situation is.
CHRIS MANN: And of course Spain’s a much bigger deal than Greece, or really any of the other ones that are in peril at the moment.
ADAM KIRTLEY: Oh absolutely. Whilst the Greek situation is a tragedy for the people of Greece, in crude number terms it’s 2% or so of the Eurozone economy. It doesn’t really matter, in that sense. Spain a much bigger fish of course. And such a big fish that if it went, Italy would be bound to be next, many believe. So you can’t really see Spain in the same light as Greece. Now Greece has kind of fallen by the wayside. It’s pretty discounted in the markets now. But with Spain, nobody really knowing how bad the Spanish banking system is, some people say there’s a black hole of around 180 billion euros, other people say it’s about 50 billion. Banco Santander says around 40 billion. Well that’s such a disparate figures that nobody knows the extent of the problem. And therefore, people are saying, look, we’re not going to lend Spain, the Government, any money, because we don’t know how much it would have to spend on bailing its banks out.
CHRIS MANN: Now this might affect a lot of British people, of course, who own properties in Spain, even those that go there on holiday. There’s lots of different ways it could affect us.
ADAM KIRTLEY: Oh hugely. A, if you have a property in Spain, it’s pretty guaranteed it’s gone down in value. B, where is the mortgage? If the mortgage is in pounds, and the Eurozone collapses, well that’s actually quite good really for you. But if the mortgage is in the Eurozone, and that Eurozone collapses, what happens to the mortgage? What happens to the currency? What happens to your money? If you’ve got savings because you own a property abroad, maybe you rent it out, and you bank your euros in one of those banks, people will be fearful that the banks may not be able to pay you your deposit money. Although in this country your deposits are guaranteed up to several tens of thousands of pounds. Too many imponderables. And the other thing of course to remember Chris is that many people listening to BBC Cambridgeshire will bank with Banco Santander. It’s a big presence on the high street. It took over the likes of Abbey National. Now one must be at pains to point out that the Banco Santander in the UK is governed by our laws, and therefore your deposits are guaranteed. However, the bank in and of itself could get into trouble. It says it’s strong, but if Spain goes belly-up, what would happen to Banco Santander? So all sorts of things going on. And the markets hate it. They can’t bear this uncertainty, this lack of knowing where the black holes are etcetera.
CHRIS MANN: As you know, many people over the last two, three, four years Adam have had staycations in Britain, because of the weakness of the pound against these foreign currencies, just the expense of it. Id it time to take advantage now? Will the pound be stronger? Will it be cheaper to go to countries like sPain.
ADAM KIRTLEY: Oh, it certainly is. I don’t have the figures to hand, but I think this time last year your tourist euro would be about 1.06 euro, 1.07 euro seven. And it’s about 1.19 euro or 1.20 euro now, and that’s a tourist rate. So absolutely, things will appear cheaper in Europe. Do remember, if you’re going to France though you now have to carry a French approved self-breathalysing test, which nobody’s talked about. So if you’re going to head out there, you must have one or you’ll be fined if you’re caught. But apart from that, yes, it is a better time to go abroad, although of course our own economy is still very weak, and we are a lot of us fearful for jobs and things. So in that sense people are cutting back. But yes, it’s the best time to go.