spain prime minister, Mariano Rajoy

Spain's Prime Minister, Mariano Rajoy gets EU bank bailout funding (Wikipedia)

Probably the biggest news story while I was away was the Spanish bailout. Some perspective here: at a time when Spain is experiencing 24% unemployment, including a jobless rate over 50% among youth, European leaders will spend up to €100 billion… giving money to their banking sector. What, you thought an infrastructure program would be more appropriate?

“The Spanish government states its intention to request European financing for the recapitalisation of banks that need it,” the country’s finance minister, Luis de Guindos, said after an emergency video conference with fellow eurozone ministers […]

Mariano Rajoy, Spain’s conservative prime minister, left explanations of the dramatic request for outside help to De Guindos, who told Spaniards that this was a simple loan rather than a bailout. The prime minister will travel to Poland on Sunday to watch Spain play Italy in Euro 2012 as his government tries to project an image of business as usual. Spain’s acceptance of aid for its banks is an embarrassment for Rajoy, who said recently that the banking sector would not need a bailout.

There was confusion about conditions of the bailout. De Guindos claimed these required Spain to take measures in the finance sector but did not involve austerity.

Eurozone finance ministers, however, warned they would closely monitor Spain’s ability to stick to deficit targets and structural reforms. There were reports of heated arguments over the conditions, with several countries initially wanting Spain to be placed under far stricter controls.

So the Spanish are desperately trying to reverse the impression that they just asked for up to €100 billion for their bankers in exchange for more suffering for their people. It’s a loan! No strings! But this of course goes against the learned history of European bailouts in Ireland, Greece and Portugal. And while Spain can still borrow under this deal, and the IMF will monitor the finance reforms (imagine that, reforming the financial sector of a country with a collapsed housing bubble!), it’s clear that this gives leverage to the rest of the Eurozone to pummel Spain’s people. Even Prime Minister Mariano Rajoy, while saying the bailout was merely a line of credit, warned of a “tough year” ahead. Spain’s already put in the austerity measures, so the bailout serves the purposes of the government, to enforce the austerity.

Maybe it’s positive that there are no new strings attached to the bailout terms. I suppose you could read this as a kind of fiscal transfer, doing for Spain what they cannot do for themselves. But Spain isn’t taking advantage of the opportunity to protect its people from budget cuts.

European leaders are also putting forth the proposition that Spain wouldn’t have received its bailout were it not for the Greek elections, to head off contagion that could ensue from a Grexit. So I don’t really see this as a step to an EU-wide banking system, though that’s probably the easiest of the integration steps. It’s more like a way for the EU and Spain to enforce austerity and blame others for the enforcement.

I will say that taking the step to shore up Spanish banks acknowledges at some level that Syriza could emerge victorious this weekend.

Probably the biggest news story while I was away was the Spanish bailout. Some perspective here: at a time when Spain is experiencing 24% unemployment, including a jobless rate over 50% among youth, European leaders will spend up to €100 billion… giving money to their banking sector. What, you thought an infrastructure program would be more appropriate?

“The Spanish government states its intention to request European financing for the recapitalisation of banks that need it,” the country’s finance minister, Luis de Guindos, said after an emergency video conference with fellow eurozone ministers […]

Mariano Rajoy, Spain’s conservative prime minister, left explanations of the dramatic request for outside help to De Guindos, who told Spaniards that this was a simple loan rather than a bailout. The prime minister will travel to Poland on Sunday to watch Spain play Italy in Euro 2012 as his government tries to project an image of business as usual. Spain’s acceptance of aid for its banks is an embarrassment for Rajoy, who said recently that the banking sector would not need a bailout.

There was confusion about conditions of the bailout. De Guindos claimed these required Spain to take measures in the finance sector but did not involve austerity.

Eurozone finance ministers, however, warned they would closely monitor Spain’s ability to stick to deficit targets and structural reforms. There were reports of heated arguments over the conditions, with several countries initially wanting Spain to be placed under far stricter controls.

So the Spanish are desperately trying to reverse the impression that they just asked for up to €100 billion for their bankers in exchange for more suffering for their people. It’s a loan! No strings! But this of course goes against the learned history of European bailouts in Ireland, Greece and Portugal. And while Spain can still borrow under this deal, and the IMF will monitor the finance reforms (imagine that, reforming the financial sector of a country with a collapsed housing bubble!), it’s clear that this gives leverage to the rest of the Eurozone to pummel Spain’s people. Even Prime Minister Mariano Rajoy, while saying the bailout was merely a line of credit, warned of a “tough year” ahead. Spain’s already put in the austerity measures, so the bailout serves the purposes of the government, to enforce the austerity.

Maybe it’s positive that there are no new strings attached to the bailout terms. I suppose you could read this as a kind of fiscal transfer, doing for Spain what they cannot do for themselves. But Spain isn’t taking advantage of the opportunity to protect its people from budget cuts.

European leaders are also putting forth the proposition that Spain wouldn’t have received its bailout were it not for the Greek elections, to head off contagion that could ensue from a Grexit. So I don’t really see this as a step to an EU-wide banking system, though that’s probably the easiest of the integration steps. It’s more like a way for the EU and Spain to enforce austerity and blame others for the enforcement.

I will say that taking the step to shore up Spanish banks acknowledges at some level that Syriza could emerge victorious this weekend.

David Dayen

David Dayen