There so many moving parts in stress tests performed on banks that one number looks as credible as another
So the Spanish banks need €62bn (£50bn) – unless the other firm of consultants is correct and the number is €51.8bn. What’s €10bn between experts?
Indeed, there so many moving parts in stress tests performed on banks that one number looks as credible as another, even if Oliver Wyman and Roland Berger are working on the same assumption that in an “adverse scenario” Spanish GDP and property prices fall sharply.
The big-picture consideration is whether that adverse scenario materialises – whether deflation continues to grip eurozone economies. If that happens, next year’s adverse scenario will have to be redefined, and so on. It’s when and how the spiral is broken that matters.
As Albert Edwards, Société Générale’s strategist, put it last week: “Spanish banks need recapitalisation because of the deflationary policies forced on them to reduce Spain’s public sector deficit at a time when the private sector is also deleveraging.
“Clearly this has a lot further to go and house prices will fall even further as a result. But the lesson from Japan was that overly focusing on the banks as the problem is misguided and until or unless deeply deflationary policies are altered, the Spanish banks will be back for another bailout before too long.”