October 22nd, 2012 by Ricardo Molero Simarro
The delay in the approval of the measures to build the so-called “bank union” within the UE, will turn out to be the confirmation of what was an open secret: the bailout to the Spanish private (or privatized) banking system it’s going to be finally integrated into the amount of public debt. This will be the last-but-one step of the process to socialization of private losses we are living since the crisis begun. A crisis that, as it is more than evident for a majority of the people, it’s not a crisis, but an utter fraud. The amount reached by this socialization is actually hard to estimate, but it is possible to come up to an approximate number, just by summarizing the main operations of the banking system bailout, that had been and are still being, carried out.
We must start by remembering that, in spite of the false rhetoric that says “we’ve been living over the top of our possibilities”, as Eduardo Garzón explains, the public debt has not yet reached more than a 20% of the total Spanish Economy debt. It should also be taken into account that this figure corresponds to the end of last year, once that according to European Comission data, public debt has practically doubled, since its previous level, before the crisis, increasing from a 36,3% in 2007 (one of the lowest levels in the whole EU), to a 68,5% in that year, 2011 (a figure that is even lower than that of Germany, France, and of course, Greece, Italy, Ireland or Portugal). It means to say that opposite to the spread notion debt problem comes from the spending of money in the public sector, and because of that, it’s size reduction and the cuts in the services it delivers would be the solution to the crisis, the truth be told, debt has a clear private nature.
Not in vain, from the total amount of indebtedness of the Spanish economy, that exceeds the 300% of the GDP, it’s banks, companies and families debts that constitute up to an 80% of it. The debt of the latter, is merely a 25%, while that of the banks and companies, represent the remaining 75%. And among these second ones, a 95% belongs to large companies. Moreover, as also points out Eduardo Garzón, 40% of lower income families, allocate up to a 75% of the acquired debt to the financing of their mortgage on their first home, which is a basic social right, guaranteed by the Constitution.
Which, again also means, that against the also extended notion that all the people would have taken part of the Property bubble, and because of that, now they’d ought to pay the bill of the crisis, it’s actually only those who had capacity to take part in that kind of investment, the ones who made profits with Real Estate speculation, i.e.: higher income families, contractors, developers, and banks themselves.
Although at its time, benefits of economic growth generated by the bubble remained in the hands of a few, since 2008, losses that the financial crisis produced have not ceased to be driven through public finances. According to data from the European Comission itself, the amount of public bailouts to the banks between 2008 and 2010, that is even before the famous rescue appeared on the horizon, could ascend to an 8,4% of the GDP. As Bibiana Medialdea explains, that amount, transferred to the banking sector in great deal through the FROB, there would have been 10.8 billion assisting recapitalization of banks, 55.8 to warrants given to them to take debt with third parties, and 22.18 in financial facilities and liquidity injections. These figures, that were accounted as public debt, show together with the loss of tax incomes generated by the crisis, that the amount of the latter, will reach the 80% of the GDP this year (2012), after having increased the expense on the payment of interests it generates, in an 80% between 2007 and 2012.
However, in spite of the fact that this means an unlawful load for the State, these public funds dedicated to assist the banking sector, shouldn’t have meant such impact in the interests. If the ECB should have financed the States directly, instead of providing public and subsidized credit to private banks, the cost of this financing should have been significantly lower. The bottom line is that while from the beginning of the crisis, a credit facility at an interest rate of 1% and 1,5% has been available to the European private banks, the ECB has a prohibition by its Statutes to give loans to States. Far from driving this credit to companies or families, this bank sector has destined this credit to speculate with public debt of countries like Spain, getting returns of more than 5% (spread between rates of ECB loans and that the Spanish State has been forced to issue its debt titles). For us to have a better idea of the magnitude of this mechanism, according to Banco de España data, the net amount that Spanish private banks had obtained through it, reached last August, the figure of 388 billion euros.
But not even with this mechanism, that have contributed decisively to multiply the amount of interests paid by the State, has been enough to clean up the banking system. Calculations made by private consultants Oliver Wyman say that spanish bank entities would still need another 55 billion euros of direct capital injection by the public sector. This figure is the one that will be sourced by money from the EU bailing mechanism. The amount that the State would absorb for the bailout of the private sector, including it, as said at the beginning, in the total public debt, would be of 40 billion euros, from a total of 100 billion to be made available through the EU open credit line.
However, these funds would not be – again – enough, since after setting the bailout, there would be still outstanding the “icing on the cake”: the cleaning up of those so-called “toxic assets” (mainly from the property market) showed in the balance sheets of banks, which, according to calculations of BdE (Bank of Spain), would exceed 180 billion euros. From that number, it is expected that the “banco malo” (lousy bank) the Government is determined to create, would acquire some 90 billion, which financing, as Antonio Sanabria says, will come in good part from FROB transfers, or will be guaranteed by the State.
In summary, all this means that public help given to private banks since 2008 would reach 218 billion euros, which equals approximately the 20% of the GDP of Spanish economy, and 1/3 of public debt in 2011. From that amount, at least 73 would be direct financing. To these figures, another 400 billion should be added, from the ECB loan facility. All of which comes to show, as I affirmed in a previous article, that in next year General Budget of the State 40 billion must have been cut in services like Public Health, Education, R+D, or dependence, as counterpart of the, at least, 38 billion that debt interests payment will mean.
As the motto of “Plataforma por una Auditoría Ciudadana de la Deuda” (Platform for a Citizen Debt Audit) says, this is a debt we don’t owe and hence, we shouldn’t have to pay. Firstly, because it is unlawful it should be assumed by the whole of the people when, as we described above, it was just a group of privileged ones those who had created it. Secondly, because as Miguel Montanya pinpoints, bailouts don’t work. And at last, because the measures taken to make it work, are pushing us, as it is currently happening in Greece, Ireland or Portugal, to an utter economic and social dislocation. It’s not for free that Spanish economy has fall to the bottom of world growth, only before Greece, and inequality and poverty are nothing but soaring. That is why we don’t owe, but mostly because we must not pay, this week it’s time to demonstrate. There’s no other way of stopping this fraud.
Original post (in Spanish):