In that spring of 2012 the weeks were long. The combination of macroeconomic imbalances, a hangover from the real estate binge and speculative attacks on the debt of the European periphery were melting the core of the Spanish economy. At street level, there was a debate about the risk premium and what to do with the savings if the peseta returned. The economy and employment, obviously, were in free fall, and palliative care hardly arrived from Brussels and Frankfurt, accompanied by long-winded recipes for spending cuts.
The rescue came on a Saturday, June 9, 2012, after weeks of uncertainty and very tough negotiations. It was not a rescue of the Spanish economy as a whole, but of the banking sector. As a result, the conditions for the disbursement of funds were limited to that sector. The men in black of the troika continued to plan on Madrid, but with fewer powers than in Athens or Lisbon.
It had the positive side of forcing Spain to finally face the legacy of the bubble, after years of timid decisions to say the least. On the negative side, and as expected, the markets had already smelled blood, and the attacks on Spanish and Italian debt did not stop until the ECB, chaired by Mario Draghi, settled the debate. Nobody plays against the bank, and the bets on the breakup of the euro ceased.
10 years later the world has changed so much that the rescue may seem less critical and more distant. But for Spain it was the end of a stage. A faded epitaph of the early years of the euro, turbocharged by easy credit and unbridled promotions. A few years exemplified in Bankia, which in addition to creating the millionaire hole that triggered the rescue, left a particularly complete catalog of the excesses and sins of the time.
Today the financial sector is smaller and more solid, the economy has abandoned monoculture and the tsunami of the pandemic has been better weathered, thanks above all to the turnaround in the EU. The public accounts, yes, have not stepped on positive ground and the public debt is higher than in 2012. And the Spanish fondness for brick resurfaces, without having fully digested the embarrassment of the first 2000.
This is the legacy of the rescue, which can be analyzed from multiple angles. We have chosen five: the balance of the bank rescue itself, the role of the markets, the banking situation, the macroeconomic impact and what remains to be digested.
And who pays for this?
It was June 2012. On television, the euphoria for the rescue of Spain was struggling with the most catastrophic news in the economic field. Brussels made available to the Spanish Government a financing line for 100,000 million, of which it only used 43,000 million and has already returned a little less than half. And the President of the Government at that time, Mariano Rajoy, defended that the bank bailout “would be paid by the banks themselves.” A decade later, Spain has not won another European Championship. And, of the 58,000 million that the State injected into the financial sector, it has only recovered about 6,000 million, barely 10%.
Bankia is the great white hope to make up this balance. Until 2020, the FROB has received 1,100 million in dividends and 2,100 million with two sales of shares in markets. The economic vice president Nadia Calviño bet on the idea that it is better to have few shares of a large entity than many of a more modest bank. She and she promoted the merger of the old Cajamadrid with CaixaBank, of which the State controls 16%. This package is worth about 4,500 million according to Stock Market prices and the State has until 2023 to convert these shares into titles. The FROB considers that it will be able to recover some 9,000 million of the 24,000 million that it injected into Bankia.
When the markets bet against the eurozone
The housing bubble began to burst in 2007. Lehman Brothers fell in 2008, and that winter of 2008-2009 drew the biggest financial crisis since 1929. The ‘green shoots’ that seemed to emerge in that 2009 were swept away by the euro crisis. Greece had cheated the deficit data, and market doubts later infected Portugal and Ireland, both rescued, and then Spain and Italy. In 2010 the Spanish risk premium reached 100 points in spring. The European recipe was to cut expenses to settle the accounts, hoping that the market would loosen the pressure. It was not like that, and it reached 200 in just three months, breaking the barrier of 300 and 400 points throughout 2011.
If some European capitals saw the market as the agent that would bring order to the South of Europe, the market itself saw a weakness with which to make money: bets against debt triggered debt rates, which in turn added pressure to public accounts already undermined by the economic depression. Bankia’s hole put Spain on the edge of the abyss because it was interpreted that the country simply did not have money to clean up its banks. The risk premium was already around 500 points.
On paper the bank bailout should have eased the pressure on Spain. It was not so. The market continued to tighten as it no longer doubted Spain’s ability to finance itself in the market, but rather to continue in the euro. With that variable in the equation, any Spanish asset was toxic in international portfolios… Until Mario Draghi arrived.
The president of the ECB pointed out that there was a risk of convertibility in the euro zone. And that he would do whatever it took to remove him from the equation. A The famous speech in London on July 26 was later materialized in a tool that was not necessary to resort to, since the market stopped betting against the South of Europe.
Although the start of the pandemic punished the Spanish debt again, the reaction of the ECB and the European institutions was faster this time: a free hand in the deficit and massive debt purchases. Now is when the Spanish risk premium picks up again, precisely when the stimulus measures are withdrawn. And the ECB is negotiating, for its part, how to implement a tool that prevents the financial fragmentation that, 10 years ago, almost broke the monetary union experiment.
A lost decade and a perfect storm
It has been the great crisis in Spain, without more adjectives. Or, at least, it seemed so, in a world where wars played far away and global pandemics only appeared on TV movies. The economy accumulated the imbalances of the real estate bubble, in the form of excess debt, loss of competitiveness and external deficit. Added to this was the financial crash of Lehman Brothers and then the euro crisis and European support that was, at best, conditional and hesitant.
Spain did not recover the GDP level of 2008 until 2017 and unemployment, in EPA terms, reached a peak of 6.2 million people at the beginning of 2013. In this crisis, that of the pandemic, the drop in GDP has been more abrupt, but the recovery is being faster. Mainly, because the source of the recession is not previous excesses that take time to purge, but an exogenous and temporary factor. The characteristics of the crisis, plus the room for maneuver allowed by Brussels and the ECB, have allowed the social impact to be less.
The economy, after crossing the desert of the previous crisis, is less drowned in private debt and has more export capacity, so it does not depend on foreign credit. Significant imbalances persist, particularly in public accounts affected by the pandemic: public debt is higher now than at the worst moment of the financial crisis. Unemployment, despite the corrective role of the ERTE, continues in two-digit areas. And, in the medium term, the theoretically dynamic role of European funds remains to be seen, an initiative to mutualize debts and non-refundable transfers that 10 years ago was as plausible as a massive confinement throughout the world.
The great contraction of the banking sector
From 55 to 10 entities. The process of adjustment and consolidation of the banking sector had already begun before the bailout, but it was the memorandum signed with the European partners that tightened the screws. The result, 10 years later, is a more concentrated, more profitable and more solid sector, although thousands of offices and jobs have remained in the transition. The sales of toxic credits and the creation of Sareb made it possible to clean up the balance sheets and, in fact, in recent times the concern of the entities has come more from low interest rates and low profitability than from inherited problems.
If the rescue already represented a turning point for Spain, it was even more so for the banking system. The sector took advantage of the time of the fat cows like nobody else but, when the tables turned, it was both the cause and the beneficiary of the rescue, leaving behind a not insignificant dose of image in society. And, above all, the bailout was the last straw for a business model, that of the savings banks, devastated by political interference, mismanagement and some episodes of financial banditry that brought prominent members of the establishment homeland.
Empacho, digestion and brick diet
Metaphors fall short to explain the dimension of the real estate fever that marked Spain at the beginning of the millennium. 300,000 million bank credits were accumulated to promoters, a good part of which went on to swell (in the form of real estate or loans) the balances of toxic assets of the banks or, later, that of Sareb, the bad Spanish bank.
The poisoned heritage has not yet been fully digested, beyond the half-done promotions on the outskirts of the cities. Sareb has a balance sheet of 29,000 million euros. The bank has transferred more than 200,000 million in impaired loans to funds that manage this portfolio. Giants such as Martinsa Fadesa or Reyal Urbis remained along the way.
The positive part is that the current real estate sector has little to do with it, even though housing prices are rising again at a rapid rate. Much less is being built (100,000 new building permits compared to 900,000 in 2006), less is provided and more rigorously. And the sector is now dominated by large foreign capital funds, in notable contrast to the promoters close to the savings banks that moved the wheels of the previous bubble.
This special has been prepared by: Gabriela López, Cecilia Castelló, Nuño Rodrigo, Laura Salces, Álvaro Bayón, Alfonso Simón, Denisse López and Ricardo Sobrino