http://elpais.com/elpais/2013/07/10/inenglish/1373468879_596912.html
The European Commission on Wednesday said the adjustment program imposed on Spain in exchange for the bailout to clean up its banking sector remains on track but warned of a number of potential risks that could derail the situation.
In its third report on Spain’s compliance with the terms of the rescue package of up to 100 billion euros to recapitalize banks in problems, the so-called troika - the Commission, the European Central Bank and the IMF - highlighted the risks deriving from the banking business in itself, uncertainties generated by new regulations, and the impact of a prolonged and deep recession. “The challenges are significant,” the report said.
The troika’s admonitions put something of a damper on the increasingly upbeat mood of the government regarding the arrival of a much-awaited economic recovery. They also come on the heels of updated forecasts released Tuesday by the IMF predicting that the economy would not recover until 2015, a year later than previously expected.
The Commission warned that the ongoing depressed state of economic activity accompanied by rampant unemployment could further push up non-performing loans. It painted a scenario of a vicious circle under which banks further tighten the tap on lending in order to meet capital needs, thereby delaying the recovery further. If the economy remains in the doldrums, this could lead to further deterioration in the quality of the banks’ assets and further need to top up capital.
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