How could the European rescue of Spanish banks affect the citizens?

How could the European rescue of Spanish banks affect the citizens?

  • De Guindos has formally asked for help from Europe for Spanish banking.
  • The Eurogroup has granted a loan of up to 100,000 million euros to be injected into the FROB and it will administer the entities.
  • This loan will have to be returned by the State with interest, thus increasing the public deficit, which leads to more adjustments to raise money to pay off the debt.
  • Keys to understand the rescue to the banking sector | VIDEOS about the rescue.
Ayuda europea a la banca

A Spanish flag flies before Bankia's headquarters in Madrid. EFE

After De Guindos announced a formal request for financial aid to Europe, several questions are on the air, including how this bank bailout will affect ordinary citizens .

The Eurogroup has granted the country a loan of up to 100,000 million euros that will be injected into the FROB, an entity dependent on the Bank of Spain, which will be administered according to the needs of each entity in trouble. The amount received by each bank should not be the same, "will be seen in each of the specific cases," De Guindos added at a press conference.

These are some of the issues that arise after knowing the rescue to the Spanish banking:

Will the rescue affect the citizens?

Indirectly, yes. De Guindos has specified that the conditions that the Eurogroup has put in exchange for the aid will affect only the financial sector: they will be up to 100,000 million euros that will count as State debt. This means that the money injected into the FROB the State will have to return it with interest , and that is where the citizens enter, because the public deficit will increase. Therefore, more adjustments, cuts and fiscal consolidation measures will be necessary to raise money with which to pay the debt owed to Brussels.

Rajoy, meanwhile, said on Sunday that the line of credit to the bank "will not affect the public deficit."

The Eurogroup also made it clear in its statement after the meeting held to grant aid to Spain: "Progress in correcting macroeconomic imbalances will be reviewed closely and regularly in parallel with financial assistance ."

What is good about the help?

Although the exact amount of the loan is not specified, the Minister of Economy said that the amount that the FROB will receive will do so "under very favorable conditions". That is to say, the interest that Spain will pay for this loan would be lower than those paid by the other countries rescued by Europe – Greece, Ireland and Portugal.

Are the savings safe?

In principle, the deposits that are in the banks that are going to be "rescued" can be safe , since the injection of money that the FROB entities receive will reinforce their capital structure. In this way, the savings will be guaranteed and it would be almost unthinkable that from Europe a 'corralito' was made with the deposits, since it has not done so with Greece, Ireland or Portugal.

Would the credit be activated again?

The objective of this European aid, according to De Guindos, is to recover the credit for families and SMEs. With an injection like the one that they are going to do in the Spanish banking, the Government trusts that the banks return to grant loans with greater facility.

"The ultimate reason – from the loan to the bank – is to have strong entities that give credit to small and medium-sized companies and Spanish families," explained De Guindos.

Could banks lower the price of flats?

The purpose of the aid is to clean up the assets held by banks, including real estate assets. It is expected that, in the long term, entities will recognize the losses of their real estate portfolio, and therefore, that cheaper flats will be put on sale.

This would imply that the Government can eliminate the deduction for the acquisition of housing, as requested from Brussels.

More information about:

  • Government
  • Eurozone
  • To understand the crisis
  • Rescue of banking