This post is part of our special coverage Europe in Crisis.
The consulting firm Oliver Wyman, which assesses the solidity (or lack thereof) of the main Spanish banks, made public its conclusions: the banks will need 52 000 million euros to get out of the precarious situation which the property bubble and poor administration have left them in.
How is it possible for banks to have gotten into this situation? The explanation can be found in the fact that the bulk of the estimated funds will have to be shared out between BFA/Bankia (26,400 million euros), Catalunya Caixa (7,800 million), Novacaixagalicia (6,400 million) and Banco de Valencia (3,000 million).
These banks and savings banks which now find themselves in this predicament have traditionally been controlled by politicians, who have used them not only to place friends and relatives [es] of doubtful merit in positions of great responsibility and high salary, but also as a personal piggy bank to finance all kinds of hideous monumental projects [es].
As José Mata [es] says on Twitter:
Anibal Fernández‘s [es] tweet gives an idea of the general sentiment:
The banks, in turn, are responsible for inflating the property bubble by financing businesses in the sector which have paved the country with bricks (nourished, in turn, by the uncontrolled loans which were granted to them by the German banks [es]). Later, these same banks took it upon themselves to grant mortgages so that these properties would sell. The urgency to sell them and to make fast money meant that loans were given to people with unstable jobs who would find it hard to meet the payments throughout the long periods covered by the mortgages – 20 or 30 years, or even more. And not just for a flat: on many occasions the banks convinced people to increase their loan to buy a second holiday home.
This behaviour has had two consequences: the first is that by creating an almost fictitious demand, house prices in Spain have shot up [es], becoming some of the most expensive in the EU. The second, is that when the property bubble burst, the banks found themselves with a large proportion of their capital invested in constructions which are now practically unsellable and with a considerable number of loans which are unlikely to be paid back, families who used their own flat as a guarantee for their mortgage and who now find themselves in the street when the bank seizes these properties.
Now, these same banks turn to the government – to all Spaniards – to shore up their assets. Between 2010 and 2011, the Spanish governments injected 11,000 million euros into these banks, money which is now considered lost, which has provoked an increase in the deficit as the Minister for Finance, Cristóbal Montoro, has admitted [es]. Now, so that it can continue to inject the money which the banks need according to Oliver Wyman, Spain will have to ask for a bailout of its banks from Europe, which means that the state will be responsible for repaying this European loan and in order to deal with this debt and its interest, it will have to issue public debt which is what will use up a considerable proportion of the general budget in 2013. For this reason, the government has drastically reduced the budget for health, culture, education…
El ciudadano normal y corriente, que no ha tenido ninguna responsabilidad en la creación de la burbuja inmobiliaria, es el que tendrá que pagar el pato y la deuda. Es una situación profundamente injusta, pues es ahora el Estado el que garantizará que la deuda de tales bancos se pague a sus acreedores. Es difícil diseñar un sistema más injusto.
Lo justo hubiera sido que fueran los bancos los que pagaran por sus errores y absorbieran las pérdidas. O al menos que se pactara entre el acreedor y el deudor la absorción de las pérdidas. En cambio, a partir de ahora, es el acreedor –nacional o extranjero- el que sale siempre ganando, y nunca perdiendo. Y si no se le puede pagar privadamente, que sea el ciudadano medio el que le pague a través del Estado.
Esto es lo que se llama rescate al sistema financiero. Y como parte de esta deuda privada la tiene la banca extranjera (y de una manera muy marcada la banca alemana) tal rescate financiero es, como ha ocurrido en Grecia, Portugal e Irlanda, un rescate a la banca alemana (y en menor medida a la francesa). Y, de nuevo, si la banca no paga la deuda privada que tiene, la pagará el Estado español. Es la socialización de las pérdidas, haciendo al Estado responsable de la deuda bancaria.
The ordinary citizen, who has no responsibility for the creation of the property bubble, is the one who will have to carry the can and the debt. It is a profoundly unjust situation, since it is now the State which will guarantee that these banks’ debts are repaid to their creditors. It would be difficult to design a more unjust system.
The fair thing would be for the banks to pay for their errors and to absorb their losses. Or at least for the absorption of the losses to be agreed between the banks and their creditors. Instead of this, from now on, it is the creditor – national or foreign – who always comes out winning and never losing. And if he cannot be repaid privately, it is the average citizen who will repay him via the State.
This is what is called the bailout of the financial system. And since a part of this private debt is held by foreign banks (in large part German), such a financial bailout is, as has occurred in Greece, Portugal and Ireland, a bailout of German (and to a lesser extent French) banks. And again, if the bank does not pay the private debt which it has, the Spanish state will pay. It is the socialisation of the losses, making the State responsible for the bank's debt.
As utopiacarmona [es] comments:
Dicho en otras palabras, el estado se ha convertido en en el principal asegurador de las pérdidas de la especulación financiera, y utiliza todos los mecanismos y recursos a su alcance, incluyendo nuestro dinero y nuestros derechos, para que la banca no pierda ni un sólo euro de lo que apostó, y eso que se supone que es una economía de libre mercado. Libre, para que la gente normal pierda, libre, para que los bancos ganen siempre.
Put in other words, the state has turned into the primary insurer for the losses of financial speculators, and uses all the mechanisms and resources in its reach, including our money and our rights, so that the bank doesn't lose a single euro of the money it bet, and that is supposedly what being a free market economy means. Free, so that normal people lose, free, so that the banks always win.
And La Clave [es] sums it up in a few words:
Privatizan las Ganancias y Socializan las perdidas.
They privatise the gains and socialise the losses.
This post is part of our special coverage Europe in Crisis.