The Spanish bank crisis escalated Wednesday, frightening investors away from markets that fell to their lowest level in nine years, as economic confidence in the euro zone declined and polls showed that Greeks favor changing the terms of their latest bailout.
Meanwhile, the European Central Bank (ECB) said that none of the nine countries that are prospective members of the eurozone were in good enough financial shape to join.
Reuters reported Wednesday that Madrid said it would look to credit markets to find funds to pour into Bankia, the country’s fourth-largest bank, which is already nationalized. However, 10-year borrowing costs are hovering near their euro-era high, at 6.67%, and Spain still says it will not look for outside help to extricate itself from its financial woes.
The Economy Ministry also denied reports that appeared in the Financial Times saying that the ECB had turned down a plan to save Bankia by funding it with government bonds that could then be used as collateral to borrow from the ECB.
“Spain did not formulate any proposal to the ECB on funding the Bankia plan, so it was difficult for it to have an opinion,” said a ministry spokeswoman in the report. “The Economy Ministry maintains as a first option to go to the markets to recapitalize the entity.”
Avoiding outside help appears to be getting more difficult as the days pass. On Tuesday, Bank of Spain Governor Miguel Angel Fernandez Ordonez suddenly resigned, a month before the end of his term. That added to speculation about how the Bankia crisis was being handled and how Spain would manage to work with the ECB and other such institutions.
Ordonez also warned on his departure that tax revenue may come up short compared to government expectations and that spending could be higher than projected.
However, the European Commission (EC) backed Spain in a call for direct aid from the eurozone to banks in trouble, instead of requiring that the money be channeled through the country’s government. It also spoke out in favor of joint euro-area bonds.
If the eurozone’s permanent bailout fund were to provide cash directly to banks in trouble, said the EC in a Bloomberg report, it would “sever the link between banks and the sovereigns.” The EC also called for a “banking union” that would supervise more closely those banks with cross-border exposure, would put together a European fund pool to be used to rescue those banks and also segregate their underperforming assets.