Spanish Banks

Well, we have had some unwelcome excitment over the last few weeks with the focus on the Cajas which are now scrambling to re-organize to take advantage of the capital available through FROB.  Unfortunately, many of these arrangements will allow a strong element of local political control to remain and, as we all know, this has been at the heart of many of the problems at the Cajas.  What we are conveniently forgetting is that the capital injection from FROB will have to be repaid.  Where will that money come from?  We are applying band aids to situations where major surgery is required and these actions will not fully solve the problem.  With this government it is always too little, too late.

EU Commissioner, Joaquín Almunia, has warned that problems in the Cajas could easily spill over into the main banking sector, which has a few of its own problems.  This was demonstrated in recent excessive movements in the Ibex 35, with particular emphasis on the banking sector.  Also, the inter-bank lending market is practically dead so it would seem that the European Central Bank will have to continue its funding programme beyond September.

With the deteriorating external view of the Spanish economy as encapsulated in a recent web article entitled The Spanish Economy is about to get Gored..., we need a strong banking sector, with the ability to lend to businesses, as an important element of any recovery.  Check out this link for some background information on the problem, and this link for information on the current debt situation of Spain and the other important European countries, a recent Banco de España presentation about the banking situation, and why a lower value Euro won't help our exports in any material way as most of our exports are destined for Euro countries.