The European Stability Mechanism may have as little as 400 billion euros remaining after Spain?s bank bailout, said Klaus Regling, head of the euro area?s rescue funds.
The remaining capacity of the euro-area firewall will depend on how much money Spanish banks actually need, Regling said, according to the transcript of a conference call on Tuesday with investors. A Sept. 18 presentation on the rescue fund?s website says the Spanish loan program will cover an expected capital shortfall of 51 billion to 62 billion euros, with an ?additional safety margin? up to the 100 billion-euro maximum.
?The exact amount will only be known after the results of the bottom-up audit of Spanish banks are published later this week,? Regling said, in answer to a question about the rescue funds? remaining lending capacity after accounting for the Spanish program.
?We will then know if the full 100 billion euros is needed, which is unlikely,? Regling said. ?I expect the remaining lending capacity to be higher than 400 billion euros.?
The ESM is set to start on Oct. 8, replacing the 440 billion-euro European Financial Stability Facility, which is scheduled to phase out over the next year. Regling runs both funds at their joint office in Luxembourg.
The combined capacity of the new funds will be about 700 billion, which includes the ESM?s capacity plus EFSF funds already earmarked for Portugal, Ireland and Greece. It has not yet been determined whether loans to Spain will be funneled through a combination of the two funds or just the ESM. That decision does not affect the firewall?s combined capacity.
Euro-area nations have a ?mutual understanding? that ESM loans ?and other forms of financial assistance? will have seniority over other creditors except for the International Monetary Fund, though leaders can choose to forego this as they did in their ?one-off? decision on Spain?s bank bailout, Regling said.
In several member states such a decision would also require support by the national parliament, he said.