The Spanish Bailout Guide for Dummies

Interview with the Spanish Secretary of Economics Luis de Guindos

In: Frankfurter Allgemeine Zeitung:

Referred to in: El País:

The salient point is in my translation:



Please explain a detail: Spain gets a credit, but is not liable for possible losses. Neither does the loan count as public debt. The risk is carried by the Euro-zone countries in solidarity. Is that correct?


No. The credit is extended to the Spanish Bank Restructuring Fund (FROB). Spain guarantees for that. The loan conditions are advantageous. Maturity is 12.5 years. We guarantee for the payment of the principal. I’m convinced that it will not give the creditors the smallest loss.


That is: The loan count as sovereign debt?


Yes the interest payments are sovereign expenditure. There will also be income due to profits and injection of capital. From the banks point of view there will also be positive interests.

Now FROB or Fondo de reestructuración ordenada bancaria – or The Fund for Orderly Bank Restructuring – is:

The Fund for Orderly Bank Restructuring has been created by the Royal Decree – law 9/2009, of June 26, on credit institution restructuring processes and enhancement of their equity.

The Fund for Orderly Bank Restructuring was created to manage the restructuring processes of credit institutions and assist in the enhancement of their equity, on the terms laid down by this Royal Decree-Law.

Thus it is NOT a limited liability company, but a direct state owned company! This means the Spanish state is directly liable.

This is tremendously important, as the whole essence of the disagreement between Germany (and Finland f.i.) has been whether the taxpayers in the other European countries were liable and thus could lose money. They can in so far as the loan conditions are more advantageous than Spain could otherwise have achieved. As far as I recall we are talking an interest rate of 3% (where the Spanish 10 year sovereign bond is rarely less than 5%) and the maturity is 12½ years (on average the longest maturity in the mix is 15 years).

But the losses in the banks and in the FROB are the Spanish States sovereign losses. What has percolated around among the pundits was something akin to the ECB injecting capital directly into dead banks – that is NOT the case.

The nonnegotiable German demand (as formulated by Kanzlerin Angela Merkel): “Keine Haftung ohne Zugriff!” – translated: “No liability without recourse”. Has thus been met.

The main problem in the whole process has been to separate the real economy from the financial disaster.

The economy is marred by public overspending. Spain has an export surplus with the rest of Europe and a stable export quota. This means little if imports are too high and Spaniard spend more than they earn.

There are severe public cutbacks (public employees losing their 13th annual month salary f.i.) and some mines are closed which result (as mine closures always does) in riots – Thatcher experienced the same in Great Britain when she closed unprofitable mines.