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Spain downplays ECB criticism of new bank tax

Spain’s leftist government Friday defended its proposed windfall tax on banks after the European Central Bank raised concerns that it could lead lenders to provide less credit and damage their capital position.

Prime Minister Pedro Sanchez said he had no intention of backtracking on the tax, which is due to go into effect next year.

“We’ll study the (ECB’s) report, but the Spanish government will stick to its roadmap to create this important tax,” he said at a news conference following a summit meeting in neighbouring Portugal.

The government in July introduced a draft bill to slap a temporary 4.8 percent charge on banks’ net interest income and net commissions in 2023 and 2024 to fund measures to ease cost-of-living pressures.

In a non-binding legal opinion published Thursday, the ECB recommended Madrid conduct a “thorough analysis of potential negative consequences for the banking sector” of the tax.

This is needed “to ensure that its application does not pose risks to financial stability, banking sector resilience and the provision of credit”.

Asked about the legal opinion Friday, Spain’s Economy Minister Nadia Calvino said the government had “already taken into account the questions raised” by the ECB when it drew up the tax.

Spanish banks have posted record profits and have “very high solvency ratios” so there is “no reason” for this temporary tax” to lead to less credit being granted by lenders, she added.

Top executives at Spanish lenders such as Santander and BBVA have said the proposed tax would directly hit their profitability.

Sanchez’s government has said it expects to raise around three billion euros with the tax by 2024, which it will use to fund measures to help consumers deal with soaring inflation.

Like other countries, Spain has been struggling with high inflation as a result of the fallout from the war in Ukraine and the reopening of the economy after pandemic-related lockdowns.

Inflation in Spain peaked this summer at 10.8 percent in July, its highest level in 38 years, before moderately slowing to 7.3 percent in October — still well above normal levels.