Op-ed: Another credit crunch could hit Spain

The latest stock market plunge has been persecuting the usual suspects of the debt crisis: the banks. At the slightest hint that 2008 will repeat itself, money has fled from a financial sector that is still under reconstruction. And that makes banks nervous and suspicious of doing interbank deals, which are starting to be under lock and key.

This is happening just when the lenders still have important debt issues inherited from the latest bonanza. Likewise, markets are increasingly doubtful that the banks are capable of servicing their debt, even if they get aid from the central banks.

Not to mention from a government that has no leeway left to fund distressed banks. In Europe, whatever concrete solution we find for the peripheral countries is going to specify that any bank specifies any losses in their sovereign debt portfolios. And in Spain, things are complicated because lenders ought to remember their real estate losses and not, because they don?t want to do it suddenly, lower prices in order to sell shares. Because as a result they will have trapped part of their liquidity.

Now that markets are mostly closed off, Spaniards are embroiled in a profitless fight for deposits. And this is worsened by a government that is forcing them to contribute more to the Fondo de Depósitos when they are offering high yields. Ultimately, this kind of situation is going to generate another credit crunch in the real economy, because the authorities are still incapable of fixing problems in an industry that?s already plagued by debt.