Rescate Banca Española

- VS-NfD Draft 9.07.2012

SPAIN
MEMORANDUM OF UNDERSTANDING ON
FINANCIAL-SECTOR POLICY CONDITIONALITY
XX JULY 2012

With regard to the EFSF Framework Agreement, and in particular Article 2 (1) thereof, this
Memorandum of Understanding on financial-sector policy conditionality (MoU), details the
policy conditions as embedded in Council Decision […] of 20 July 2012 on specific
measures toreinforce financial stability in Spain. Given the nature of the financial support
provided to Spain, conditionality will be financial-sector specific and will include both bankspecific conditionality in line with State aid rules and horizontal conditionality. In parallel,
Spain will have to comply fully with its commitments and obligations under the EDP and the
recommendations to addressmacroeconomic imbalances within the framework of the
European Semester. Progress in meeting these obligations under the relevant EU procedures
will be closely monitored in parallel with the regular review of programme implementation.
For the duration of the EFSF financial assistance, the Spanish authorities will take all the
necessary measures to ensure a successful implementation of the programme.They also
commit to consult ex-ante with the European Commission, and the European Central Bank
(ECB) on the adoption of financial-sector policies that are not included in this MoU but that
could have a material impact on the achievement of programme objectives – the technical
advice of the International Monetary Fund (IMF) will also be solicited. They will also
provide the EuropeanCommission, the ECB and the IMF with all information required to
monitor progress in programme implementation and to track the financial situation. Annex 1
provides a provisional list of data requirements.
I. INTRODUCTION
1.
On 25 June 2012, the Spanish Government requested external financial assistance
in the context of the ongoing restructuring and recapitalisation of the Spanish banking
sector.The assistance is sought under the terms of the Financial Assistance for the
Recapitalisation of Financial Institutions by the EFSF. Following this request, the European
Commission in liaison with the ECB, the European Banking Authority (EBA) and the IMF
conducted an independent assessment of the eligibility of Spain's request for such assistance.
This assessment concluded that Spain fulfilsthe eligibility conditions. The Heads of State
and Government at the Euro Area Summit of 29 June 2012 specified that the assistance will
subsequently be taken over by the ESM, once this institution is fully operational, without

- VS-NfD gaining seniority status. The full implementation of this MoU will take into account all other
relevant considerations contained in the Euro Area Summitstatement of 29 June 2012.
II. RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS AND OUTLOOK
2.
The global financial and economic crisis exposed weaknesses in the growth
pattern of the Spanish economy. Spain recorded a long period of strong growth, which was,
in part, based on a credit-driven domestic demand boom. Very low real interest rates
triggered the accumulation of high domestic and externalimbalances as well as a real estate
bubble. The sharp correction of that boom in the context of the international financial crisis
led to a recession and job destruction.
3.
The unwinding of economic imbalances is weighing on the growth outlook. Private
sector deleveraging implies subdued domestic demand in the medium term. Sizable external
financing needs increase the vulnerability of theSpanish economy. A shift to durable current
account surpluses will be required to reduce external debt to a sustainable level. Public debt
is increasing rapidly due to persistently high general government deficits since the beginning
of the crisis linked to the shift to a much less tax-rich growth pattern.
4.
The challenges that face segments of the banking sector continue to negatively
affect...