FRANKFURT (MNI) – More clarity about the scale of the problems
facing Spanish banks is needed before talks on potential European aid
can begin, European Central Bank President Mario Draghi said on
Thursday, echoing comments from the European Commission.

“Any decision about the EFSF should be based on a realistic
assessment of needs to capitalize banks and the money that is available
to the government without need for external support,” Draghi said at the
ECB’s regular monthly press conference.

A first assessment of the problem, by the International Monetary
Fund, would be ready this Friday Draghi said.

“Then we will have to wait for the assessment of the outside firms
that have been hired by the Spanish government,” he added.

Earlier Wednesday, a spokesman for the European Commission said “it
would be irresponsible and not serious to speculate on the cost of any
recapitalization needs” until there was clarity about the scale of
Spanish banks’ recapitalisation needs.

Spain’s Prime Minister Mariano Rajoy said Tuesday that the country
was in “extreme difficulty,” and Budget Minister Cristobal Montoro
warned that the country was having trouble obtaining funding from
markets. But Spain has not officially requested any EU aid.

Asked whether it would not be better if the EU’s future bailout
fund, the European Stability Mechanism, could be used to recapitalize
banks directly rather than indirectly through governments as the current
statute stipulates, Draghi said direct aid would be desirable from one
point of view, but he cautioned that the ESM had not been designed to be
a shareholder.

“The ESM treaty at the present time forbids the ESM from
capitalising banks directly,” Draghi recalled. “Would it be better if
the ESM were to capitalise banks directly? From one viewpoint the answer
is yes, because the ESM could recapitalise banks without the debt of the
country coming up.”

On the other hand, recapitalising banks directly could lead to the
ESM becoming a shareholder in those banks, Draghi noted. “Do we really
want an ESM that becomes a shareholder of banks? Have we designed the
ESM with the purpose of it becoming a shareholder of banks in the euro
area?”

The institutional organization of the ESM would have to be
significantly changed if it were to act as a shareholder for banks, the
ECB president suggested.

If the ESM were to inject capital directly into banks, there would
be nothing to stop it from imposing conditions, Draghi said.

On Ireland, Draghi said he welcomed the success of the recent
popular referendum on the new European fiscal compact. He added that
Dublin has “achieved remarkable, very significant, substantial progress”
in restructuring its banks and restoring the health of its public
finances.

“The key message is ‘continue on this path,'” he said, suggesting
that Ireland’s eventual return to the markets “is closer than we all
expected, I would say, nine months ago.”

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