The FINANCIAL — Spain said Monday that it hoped EU leaders would make rapid progress at a summit later this week to pave the way for a direct recapitalisation of the country's troubled banking system.
Spanish Foreign Minister Jose Manuel Garcia-Margallo said Madrid hoped the leaders meeting Thursday and Friday would take concrete steps to put in place the single bank regulator for a European banking union agreed at a June summit.
This controversial Single Supervisory Mechanism (SSM) once operational allows the recently inaugurated European Stability Mechanism to directly recapitalise struggling banks, meaning eurozone governments in difficulty would not be taking on even more debt themselves.
"This is precisely what concerns Spain … that the financial aid for the banks does not count as public debt," Garcia-Margallo said as he went into a meeting of EU foreign ministers in Luxembourg.
The EU agreed at the June summit to offer Spain up to 100 billion euros ($128 billion) in aid for its banks, floundering under a mountain of bad debt after a massive property bubble collapsed in 2008.
The SMM and the associated banking union is supposed to be in place by the end of this year but are highly controversial, especially for non-euro states who fear that they will be sidelined by the new regulator or that their banks operating in euro countries will no longer come under their own oversight.
Asked whether the end-2012 timetable could be kept given the opposition, the Spanish foreign minister said only: "God Willing."
The SSM would have oversight over some 6,000 eurozone banks under the overall control of the European Central Bank, which would also play a key role by intervening on the financial markets to drive down borrowing costs of those eurozone states needing help.
Such intervention requires first that the country in question asks the ESM for help, which will come with conditions.
As EUbusiness announced, after the bank aid agreement in June, there has been persistent speculation that Spain might seek a full debt bailout but Madrid has been reluctant to do so because it does not want to surrender policy control under a rescue programme drawn up by the ECB and ESM.
Garcia-Margallo said he would not comment on this aspect as it was the responsibility of the economy minister.