Although Spain’s Prime Minister, Sr. Rajoy, insisted it wasn’t but is reluctant to explain what he thinks it was, the recent €100 billion loan from the European Union looks very much like a bailout to the rest of us. OK, it was technically a bailout of the nation’s banks, not the country itself, and I guess that is the reasoning behind Mr. Rajoy’s argument, but the fact remains that it is a hefty new loan to have to absorb and eventually repay.
On the positive side it comes at much lower interest rates, but also at the cost of national pride. The Spanish, as we know, are a proud people, and this hasn’t been one of their favourite moments. The good news in all of this is the fact that only about 30% of Spain’s banks needed bailing out – the bad news is that 30% of Spain’s banks required such a vast sum of money to get them out of trouble.
After the initial relief the scenario has gone right back to one of uncertainty. The bailout has bought Spain and its banks time, but it isn’t totally unimaginable that the problem will spread geographically and/or to a full bailout of Spain, and this is what the authorities want to avoid. Rajoy needs to be brave and stimulate the private sector with new labour reforms and tax incentives – even if this costs him valuable tax revenue in the short run.
In the meantime ALL the nation’s banks will have to comply with the toughened up conditions that are the strings attached to this bailout. One imagines they will have to further raise their capital to asset ratios, and this could stimulate the release of more real estate stock currently held by them, but has the effect of removing more much needed finance from the general business economy. However, the increased pressure to sell will further lower the price accepted by the banks, especially of lower-end properties to make them more attractive to buyers, whichever currency they use. The balance of that is that it will move more existing owners into negative equity where their mortgage loans are more than the current market value of their property.
Campbell D. Ferguson, FRICS, has been advising buyers on what’s real and what’s not for more than ten years on the Costa del Sol and for 40 years throughout the UK and Europe. The Survey Spain Network, carries out valuations, building and structural surveys anywhere in mainland Spain, the Balearic and Canary Islands, and Gibraltar.