Spain, striving to bring its economy
out of the doldrums, this week sought to front-foot its financial problems by
revealing the extent of its banking needs while pushing spending cuts and tax
increases.
But the two-pronged offensive on the country's financial problems -- through Thursday's 2013 budget and
Friday's banking audit -- are yet to prove they can stave off a sovereign
bailout.
Thursday's cuts, showing the budgets of all ministries will be
reduced by an average 12%, failed to stem the country's rising borrowing costs.
Friday's banking audit,
which revealed the sector needs almost 60 billion euros in capital, was as
expected and is "unlikely to agitate markets," according to Daiwa
credit analyst Michael Symonds.
Nicholas Spiro, managing
director of Spiro Sovereign Strategy, said the "stage-managed
attempt" from Spain's Prime Minister Mariano Rajoy to control the reform
agenda is made difficult by the "moving target" of the country's
downturn.
And
while the banking audit returned an unsurprising figure, "There's nothing
positive about a 60 billion euro shortfall which, even several months ago, was
at the low end of most estimates," Spiro said.
Spain is the eurozone bloc's fourth largest economy but is laboring
under the collapse of its real estate market, unemployment at a record 25% and
looming debt repayments.
The
country now faces the "heavy lifting," Symonds noted. "Over the
coming months, restructuring plans will need to be finished-off and approved,
the architecture of the bad bank finalized, and the delicate task of
haircutting subordinated creditors -- many of which are retail investors --
carried out," he said.
Spain already has 100 billion euros available to tap after the
Eurogroup in July agreed to assist the country recapitalize its banks.
According to Symonds, 35 billion euros to 40 billions euros was likely to be
sought in aid.
Focus,
meanwhile, has turned to the country's potential for a wider sovereign bailout.
Spain has long been regarded as "too big to fail" but analysts
increasingly expect it to follow the path of its much smaller peers -- Greece,
Ireland and Portugal -- in seeking further aid to pull it through the crisis.
According to Symonds, a request from Spain for broader support from
the European Central Bank's
bond buying program and
the eurozone bailout funds now appears "inevitable."
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