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Spanish Banks Not Reliant on ECB: Finance Minister

Spanish banks use the European Central Bank's discount window because it is available, but they would be able to find other means of financing if it wasn't, Elena Salgado, vice-president of the Spanish government and finance minister, told CNBC in an interview Thursday.

Salgado reiterated her stance that the country will not need a bailout from the European Union and the International Monetary Fund, unlike Greece and Ireland.

Elena Salgado, Spain's Economy and Finance Minister
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Elena Salgado, Spain's Economy and Finance Minister

"If you are talking about financial assistance, for sure, not. But of course any of the countries of the euro area, we need all the others because we have to improve our economic governance so we have to work together. But if you are talking about a bailout, definitely not,” Salgado told CNBC.

Later on Thursday, Spain got strong demand at an auction of five-year bonds while the yield came in lower than expected.

Salgado told CNBC that Spain could raise money without support from the central bank in Frankfurt.

“As you know we normally do not know because the European Central Bank, they say how many bonds they are going to help but not the countries of origin but we think we are capable to do by our own means,” she said.

Spanish Banks Solid

Questions have been raised about the financial health of the Spanish banking industry, which has been a big user of the ECB discount window.

“Our financial institutions are the same as many others in the euro area," Salgado said. "They have gone to the ECB because the ECB facility is there so for them, it’s nonsense not to use it."

The amounts Spanish banks received from this facility has been decreasing over the past year, she added.

“I think this is going to continue while this facility continues. If not, they will have another means to finance,” Salgado said.

She is confident the recent stress tests imposed on the Spanish banks mean there are no nasty surprises sitting on balance sheets.

“We are confident on them because as you know we have gone through a big strong restructuring process, we have gone from forty-five savings banks to seventeen and of course we have gone through a stress test, very tough stress tests I have to say,” Salgado said.

In Spain, 95 percent of the financial system went to the stress tests carried out in Europe in July, while in other countries that percentage was just 50 percent, she added.

“Transparency is going to increase because at the end of this month all savings banks are going to say what assets they have,” Salgado said.

Rebalancing the Economy

Investors remain very worried about the high levels of unemployment in Spain and its impact on the mortgage market but Salgado dismisses those concerns.

“I think you have always to consider the level of our non-performing loans in Spain is very low. The mortgages are paid differently than in other countries, you respond not only with the house but with all the properties you have so this is one of the reasons of course that the level of non-performing loans is very low," she explained.

“So these are robust assets, the mortgages that the banks have in their balance sheets. But apart from that we think that the level of our private debt or better said the rapidity of the expansion of the credit in Spain has been too big so this is one of the imbalances that we are reducing now.”

Spain is reducing the three major imbalances it had: the weight of the real estate sector in the economy, the rapid expansion of credit in the private sector and the current account deficit, she said.

"These three major imbalances are being reduced very rapidly so we think that we are in much better position now," Salgado added.

Unemployment remains a major problem in Spain following the collapse of the construction industry and the government is attempting to correct this problem, according to the finance minister.

“Sixty percent of the job losses have been in the real estate sector so this is very much related to that. So what we have to do is first change our economic model to give more importance to other activities with more to technology and exports, this is something that we are doing,” she said.

“Secondly, we have to continue with our structural reforms, one of the most important is the labor market reform. We have started with it but we have to continue with a new model of collective bargaining. We think this is the way in which we can increase our jobs in the future.”

Clarification:This version of the story makes clear Elena Salgado did not explicitly say the Spanish banking sector does not need more government support.

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