Lending in Spain has all but dried up. Banks don’t want to (or cannot) lend because they are capital impaired and there are too few creditworthy risks.

In such an environment, lending is not wise. It will lead to more losses. But that is not how government bureaucrats think. Prime minister, Mariano Rajoy is preparing measures to ‘desbancarizar’ save the economy and SMEs

He acknowledged President Mariano Rajoy in balance the first year of government: the main problem of the economy to start recovery is the lack of financing for SMEs [Small and Medium Enterprises]. With that goal-getting liquidity regrease economic system, the government last a number of measures to facilitate the financing of small and medium enterprises. Or what is the same, it is ‘desbancarizar‘ the Spanish economy far too dependent on credit institutions in granting loans or other financing of productive activity.

The Government is considering the creation of new instruments for SMEs operate with the State guarantee, which is considered key to boost economic activity. At the same time, they want to boost mutual guarantee societies, an instrument in the hands of the regions that did not just start with all its potential. In parallel, the Ministry of Economy is betting big on the credits of the ICO for SMEs, about 22,000 million euros in 2013 for self-employed and SMEs.

The result of this ‘banking’ of the Spanish economy is lethal. There are no corporate funding mechanisms that provide a continuous flow of resources, which is an additional difficulty facing Spanish companies in a recessionary environment. With the addition of that full financial restructuring-dunk entities to restore its solvency levels, can not allocate funds to finance productive activity. To this we must add that the public sector is eaten much of the credit to finance their high fiscal deficits, the so-called crowding out effect, which involves the removal of private economic agents in funding.

Spain Beyond Repair

Spain hopes to boost small business access to finance outside of the banking world by encouraging the market to accept paper of smaller businesses, by guaranteeing debt, and via the official credit office“, writes reader Bran who lives in span and forwarded the above link.

Regardless of the precise translation of “desbancarizar“, I am certain it will fail. Quite literally Spain is beyond repair, at least within the eurozone.

Mike “Mish” Shedlock