31 May 2012

Spain ‘should have acted earlier over Bankia’

Mario Draghi, president of the European Central Bank, criticises Spain for underestimating the problems faced by Bankia, the troubled nationalised bank.

It is unclear how any government bailout of Bankia will be financed

Mr Draghi told the European parliament on Thursday that, when confronted with a “dramatic need” to rescue banks such as Bankia and Dexia, a Belgian lender, national supervises repeatedly underestimated the amount a rescue would cost.

Bankia, made up of seven rescued Spanish banks, has been part-nationalised by the country’s government. It has suffered losses mainly linked to the collapse of the Spanish property market.

Mr Draghi said. “There is a first assessment, then a second, a third, a fourth.”

“This is the worst possible way of doing things. Everyone ends up doing the right thing, but at the highest cost.”

The Spanish government last week announced it would inject an additional €19bn of capital into Bankia, after saying earlier this month that the total bill for state aid to the country’s banking sector would not exceed €15bn.

Mr Draghi’s comments come amid mounting support for such a “banking union” from European leaders in both Brussels and some national capitals.


On Monday, Prime Minister David Cameron held a top-level meeting at 10 Downing Street to discuss the deepening crisis in the eurozone

Two days later, José Manuel Barroso, president of the European Commission, praised similar policies and asked for a “roadmap” to be decided at an upcoming EU summit.

Mario Monti, the Italian prime minister, has also promoted such measures and has received some support from François Hollande, the new French president. But these measures have been opposed by Germany.

Spain’s centre-right government has so far failed to clearly say how it plans to finance the rescue of the country’s fourth-biggest lender, leaving markets confused and driving the country’s borrowing costs to levels at which Ireland and Portugal sought international bailouts.

Also on Thursday, new figures showed Germany’s unemployment rate fell below 7 per cent as Europe’s biggest economy continued to perform strongly.

The jobless rate dropped to 6.7 per cent in May, from 7 per cent in April, as the number of people unemployed fell by 108,000 to 2.86 million.

However, there was more bad news from Greece as figures showed that Greek retail sales volumes fell by 16.2 per cent in March compared with a year earlier. This followed February’s decline of 12.9 per cent.