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Remarks on the MoU: Memorandum of Understanding on Financial-Sector Policy Conditionality draft

Posted
7/10/2012 3:00:00 PM
By: FXstreet.com
Referenced Stocks:AMC

FXstreet.com (San Francisco) - The draft of the Memorandum of Understanding on Financial-Sector Policy Conditionality (MoU) said that "The main objective of the financial sector programme in Spain is to increase the long-term resilience of the banking sector as a whole, thus, restoring its market access," and to reach this target Spain is called to reforms its financial system and complete structural reforms in the terms of 2 year. The Aid will be released in the next 18 months (€100B as top).

The memo provides more powers to the Banco de España instead of Financial Ministry De Guindos in order to have a more independent central bank. The MoU also recommends the creation of another independent institution to regulate the whole tax policy in the Kingdom of Spain.

"The key component of the programme is an overhaul of the weak segments of the Spanish financial sector," says the draft. "It will be comprised of the following three elements:"

· Identification of individual bank capital needs through a comprehensive asset quality review of the banking sector and a bank-by-bank stress test, based on that asset quality review
· Recapitalization, restructuring and/or resolution of weak banks, based on plans to address any capital shortfalls identified in the stress test
· Segregation of assets in those banks receiving public support in their recapitalization effort and their transfer of the impaired assets to an external Asset Management Company ( AMC ).

"These amendments should also include provisions allowing that holders of hybrid capital instruments and subordinated debt fully participate in the SLEs." Capital ratio requirement in banks will be the 9% at least until 2014.

The Rajoy's government is commitment to "present by end-July a multi-annual budgetary plan for 2013-14, which fully specifies the structural measures that are necessary to achieve the correction of the excessive deficit."

Regarding structural reforms, "the Spanish authorities are committed to implement the country-specific recommendations in the context of the European Semester" as follow:

1) Introduce a taxation system consistent with the fiscal consolidation efforts and more supportive to growth,
2) Ensure less tax-induced bias towards indebtedness and homeownership,
3) Implement the labour market reforms,
4) Take additional measures to increase the effectiveness of active labour market policies,
5) Take additional measures to open up professional services, reduce delays in obtaining business licences, and eliminate barriers to doing business,
6) Complete the electricity and gas interconnections with neighbouring countries, and address the electricity tariff deficit in a comprehensive way.

Troika seems to be busy with Spain in the next years as it is with Greece. "Spanish authorities will regularly submit or update, at least on a weekly or monthly basis," and the "The European Commission, in liaison with the ECB and EBA, will verify at regular intervals that the policy conditions attached to the financial assistance are fulfilled."