Was the Spanish government justified in its move to part-nationalise the ailing Bankia?
YES
Jason Gaywood
This is a pragmatic and realistic attempt by Spain to shore up its beleaguered banking sector without overburdening government coffers. But it is likely to spell trouble for the wider Eurozone. Spain has grasped the nettle by taking a 45 per cent stake in the troubled institution. Parallels can be drawn with the UK, when RBS and Lloyds were part-sold to the taxpayer in 2008. As unpalatable as it seemed at the time, this move was decisive and, with hindsight, a successful attempt to prevent the nightmare scenario of a collapse of these megalithic UK financial institutions. However, what makes sense for Spain is most certain to be detrimental for the wellbeing of Europe as a whole. Global financial markets will see this move as the most significant indicator yet that Spain will need a bailout. And sooner or later, someone will decide to stop throwing good money after bad. We are closer to at least a partial devolution of the euro.
Jason Gaywood is a director at HiFX, the currency specialist.
NO
Philip Booth
When a bank makes losses on bad loans, there is a genuine economic cost that should be borne by those responsible for providing the funding for the banking system. The same is true when banks make losses on government bonds – governments have borrowed, promising to pay back with the taxes of future generations and those future generations then refuse to pay. The lenders need to take a hit. Throughout the banking crisis, in different ways in different countries, we have tried to avoid this economic reality. The existence of deposit insurance, and inadequate legal systems for winding banks up, has made the problem much worse. As such, the banking system is so saddled with unresolved debt that it is unable to function. Nationalisation is no solution and is likely to pass the problem to others who own Spanish government debt.
Philip Booth is editorial director at the Institute of Economic Affairs and professor of insurance and risk management at Cass Business School.