The terms of Spain's bank bailout are being finalized and this draft memorandum is a near final verison that lists the timeline and details of how this bailout would be conducted. While the draft looks rather comprehensive on first glance and does have several positive elements, it is also afflicted by a number of glaring omissions.
The first of these is that the memorandum fails to understand or acknowledge the link between the macroeconomic policies being pursued by Spain, for example on cutting its fiscal deficit, and the stability of the financial sector. In fact, many of the new austerity measures adopted by Spain will undermine the objectives of its bank bailout program. It also fails on take note of the social and political realities. Crucially, it makes no reference whatsover to the direct injection of equity by the European crisis funds, now or in the future.
“Throughout this crisis, EU governments put the interests of bank bondholders over those of taxpayers. This has eroded market discipline, imposed unnecessary and unfair burdens on EU taxpayers and shielded bondholders from the consequences of the risks they undertook. The Commissions’ proposals today will help draw a line under this costly policy mistake.”
“The crisis exposed the lack of a fair, predictable and market stabilizing burden sharing regime for both sovereign and bank bondholders. This proposal plugs a part of that gap.”
“A bondholder bail-in regime, properly implemented, can be good for financial stability, taxpayers and even for bondholders themselves if it protects against value destroying bank runs and bankruptcy.”
“Proposals to bail in or haircut bank bondholders can help 1) improve market discipline 2) bring about fairer burden sharing 3) protect taxpayers 4) stabilize the EU financial system.”