THE SPANISH government called for investor calm yesterday as shares in the country’s second-largest bank tumbled nearly 30 per cent and Moody’s prepared a sweeping downgrade of Spain’s lenders.
Further fuelling the sense of unease among euro zone banks, the Cyprus government announced it would underwrite a €1.8 billion capital raising by Popular Bank of Cyprus that analysts said this could force the tiny island nation to seek bailout assistance from Brussels.
Fitch has also warned that it might place all euro zone sovereign ratings on negative watch following a rerun of Greece’s parliamentary election next month.
In Madrid, the government moved to stem any suggestion of a “run” at Bankia. “There is no concern about a possible flight of deposits [from Bankia], as there is no reason for it,” said Fernando Jiménez Latorre, the secretary of state for the economy.
After dropping 29 per cent, Bankia’s shares recovered on assurances by Mr Latorre and José Ignacio Goirigolzarri, the bank’s new chairman. Mr Goirigolzarri, who replaced Rodrigo Rato after Madrid took a €4.5 billion direct stake in the lender last week, had earlier assured staff there had been no abnormal change in its deposits. The pronouncements came after Spanish daily El Mundo reported customers had withdrawn €1 billion of deposits since last week’s part-nationalisation.
While Bankia declined to comment on the report, bankers pointed out that its total deposits exceeded €112 billion.
People close to several Spanish banks said Moody’s was set to lower the credit ratings of several lenders last night. The agency declined to comment.
Irish 10-year bond yields rose sharply yesterday, to 7.5 per cent, from 6.9 per cent on Wednesday.
A spokesman for German chancellor Angela Merkel said yesterday that she was is in a “high level of agreement” with French president François Hollande, British prime minister David Cameron and Italian prime minister Mario Monti that both fiscal consolidation and growth were needed.
The four leaders had taken part in a video conference call ahead of the G8 summit meeting in the US this weekend along with European Commission president José Manuel Barroso and Herman Van Rompuy, president of the European Council.
US president Barack Obama is expected at the summit to urge Germany to pursue policies to boost economic growth. – (Copyright The Financial Times Limited 2012/Reuters)
Mark Hennessy in London adds: Mr Cameron has defended his warning that the euro zone must either “make up or break up”, saying that it is “more dangerous to stay silent than to speak out”.
However, both Mr Cameron and chancellor of the exchequer George Osborne have made clear that a growth pact must cover changes to welfare, pensions and labour laws, along with completing the single market, rather than debt-financed spending.
Mr Osborne believes that the decision of central bank governors, including Ireland’s Patrick Honohan, and EU finance ministers to speculate about a Greek exit from the euro zone, “has let the genie out of the bottle”.
