Bailouts galore

For the second time since 2008, it's the banks that are at the heart of the EU's concerns. Back then, many of the financial institutions were propped up with public money to save them from faltering. However, confronted with Greece's possible exit from the single currency zone and financially-strapped Spanish banks, the EU finds itself, once again, on the brink of a new banking crisis.

Yet according to plans drawn up by EU Commissioner for Internal Markets Michel Barnier, new bank bailouts should no longer be shouldered by the taxpayer. "Banks will have to pay for banks. We want every member state to implement effective tools to take action before it's too late."

The proposed plan calls for EU members to set up individual crisis funds to help ailing banks. The money for the fund is to come from the banks themselves. National oversight agencies would also have the authority to replace incompetent bank managers, or force institutions to undertake restructuring measures.

Too proud for a bailout?

Yet those are all plans that – even if they do get passed – will become law only in a few years from now. For Spain, they'd be in force far too late, Barnier admits. "I can not say that this plan will be able to solve the problems that Spanish banks are having. But what I can say is that this plan has been drawn up precisely so that such situations won't happen again in the future."

Spain has big problems borrowng money in financial markets because the interest rates it has to pay are too high. But, so far, the country has rejected help from the EU rescue fund EFSF. As in the case of Greece, Portugal and Ireland, such help would be tied to tough conditions. Spain's major problem is that it's banks suffer from subprime credits dating back to the country's real estate bubble.

What Madrid would therefore prefer is the EFSF to help the banks directly without the detour via the state. Barnier though warned that "the banks know very well that this is not possible." However, he did call for such an option to be considered for the future.

Situation getting more dramatic

While ECB President Mario Draghi at a press conference this week in Frankfurt did not rule out direct EFSF help for Spanish banks, it is especially economically strong countries, like Germany, that don't like the idea of backing up Spanish banks directly when Berlin already contributes so much to the bailout fund.

In Brussels, EU Finance Commissioner Olli Rehn has called upon Spain to take action and the government in Madrid seems to have gotten the message. Spanish Finance Minister Luis de Guindos said that in about two weeks a report on the situation of the banks would be on the table. Then, the government would also present a plan on how to help those banks that need it. But time is of the essence. The situation is getting more dramatic by the day.

Author: Christoph Hasselbach / ai
Editor: Gregg Benzow