Portugal and Greece have money set aside to recapitalize their banks if the European Central Bank uncovers problems during its asset-quality review and stress test, European Stability Mechanism chief Klaus Regling said.
Portugal has market access and a buffer to cover its financing needs for the next 12 months, Regling said in an interview in London. As a result, “there’s no need for them for any emergency financing,” he said.
Portugal also has 6.4 billion euros ($8.7 billion) set aside for banks, while Greece has 11 billion euros in a similar fund. This money is set aside until after the ECB reviews wrap up, so they are available if needed, Regling said.
For Portugal, “to the best of my knowledge it will not be needed or not much be needed,” Regling said. For Greece, “we don’t know how big these needs are,” he said. “Most people expect that much less than the 11 billion euros will be needed for the Greek banks, but we don’t know.”
The ECB is taking over bank supervision throughout the euro area this year in a bid to break the link between banks and sovereign debt. The ESM and its predecessor, the temporary European Financial Stability Facility, had to rescue five members of the currency bloc as the crisis swept across Europe.
When Greece and Portugal first received aid, they were able to work with the International Monetary Fund and European authorities to aid banks without required losses for private creditors. Junior bondholders and equity investors now must take losses before governments can add public capital, under European Union rules put in place last year and used when Spain sought ESM aid to restructure its banks.
Investors wondered whether Portugal might become a test case for the new rules after Banco Espirito Santo SA ran into trouble because of missed debt payments by linked companies. The bank’s woes, which came to light earlier this month, may have made it more expensive for Greece to tap financial markets on July 10 when it raised 1.5 billion euros in a debt sale that fell short of analysts’ expectations.
“There was some contagion from the Portuguese development to other European countries and to other European banks in many different countries,” Regling said. “From what I see today, this was a short-lived phenomenon that lasted for two or three days and seems to be gone by now.” [Bloomberg]