Spain, the eurozone’s fourth biggest economy, said it was effectively losing access to credit markets due to prohibitive borrowing costs and appealed to European partners to help revive its banks.
The European Central Bank dashed investors’ hopes of an easing of monetary policy or another flood of cheap liquidity for banks despite saying the eurozone money market has again become “dysfunctional”.
The move raised pressure on EU political leaders to outline a solution to the bloc’s festering debt crisis at a summit later this month.
Spanish Economy Minister Luis de Guindos said after talks at the European Commission yesterday there were no immediate plans to apply for a bailout. Spain would await the results of an IMF report and an independent audit of the banking sector, both due this month, before taking decisions on how to recapitalise the banks, he said.
ECB president Mario Draghi said financial markets were not wrong to be worried about the future of the eurozone but they underestimated the political commitment backing the single currency. He welcomed EU leaders’ agreement to step up work on a long-term vision for a full economic and monetary union.
“Some of the problems in the euro area have nothing to do with monetary policy,” he said. “I don’t think it is right for monetary policy to fill other institutions’ lack of action.”
The European Commission proposed far-reaching powers for regulators to take control of failing banks, a first step towards a eurozone banking union. But the measure first has to be turned into law by EU governments and the European Parliament and may not take effect until 2015, too late to help Spain with its current banking crisis.
Sources in Berlin and Brussels said intensive contingency planning was already under way for EU aid to Spain. Lawyers were examining the fine print of European treaties to see how Madrid could get money from the eurozone’s rescue funds without the stigma of a full economic adjustment programme, they said.
German officials said the aim was to avoid the embarrassment of Spain having to adopt new economic reforms imposed from outside and monitored by European and International Monetary Fund inspectors, as occurred with Greece, Portugal and Ireland.