Market pressure has finally prompted the Spanish government to launch/promote a profound restructuring process amongst saving banks, a process, which in its current form still raises many question marks and still widely seen - including by us - as falling short of what would once and for all address market concerns.

In this section, we therefore focus our attention on the segment where the core of the problems seem to be, real estate, and on those participants where most risks are concentrated and transparency has traditionally been more limited by the fact that they were not listed: saving banks. We provide some estimates of the magnitude of the recapitalisation efforts which would put market concerns at bay. In a baseline, "reasonable" scenario, the capital shortfall would amount to EUR 29.2bn (after PPP). In an adverse scenario, the gap would reach EUR 68.85bn (after PPP).

In our view, given market sentiment and the negative example set by Ireland with its regular upgrades in capital needs, the Spanish government might well want to consider such an adverse scenario when finally deciding on the magnitude of its recapitalisation effort. Note that even such a large amount would still be consistent with a sustainable debt trajectory.