Spain Bailed Out

Mariano Rajoy en Bilbao. Imagen tomada por Ike...

President of Spain Mariano Rajoy warns that the danger is far from over. (Photo credit: Wikipedia)

Responding to increasingly urgent calls from across Europe and the United States, Spainon Saturday agreed to accept a bailout for its cash-starved banks as European finance ministers offered an aid package of up to $125 billion.

European leaders hope the promise of such a large package, made in an emergency conference call with Spain, will quell rising financial turmoil ahead of elections in Greece that they fear could further shake world markets.

The decision made Spain the fourth and largest European country to agree to accept emergency assistance as part of the continuing debt crisis. The aid offered by countries that use the euro was nearly three times the $46 billion in extra capital the International Monetary Fund said was the minimum that the wobbly Spanish banking sector needed to guard against a deepening of the country’s economic crisis.

On Sunday, Prime Minister Mariano Rajoy tried to deflect criticism for his government’s decision to seek assistance for Spain’s ailing bank. The winners, he said,  were “the credibility of the European project,  the future of the euro, the solidity of our financial system and the possibility that credit will flow again.”

But he warned  that Spain’s economic problems would worsen  this year despite the request. “This year is going to be a bad one,” Mr. Rajoy told reporters, according to The Associated Press.  More people, he said, could lose their jobs — one out of every four Spaniards is already unemployed.

Mr Rajoy also insisted that the rescue deal should not be seen as the fourth bailout in the euro crisis but as a loan  to recapitalize Spain’s weakest banks, “which isn’t that easy to obtain.”

The announcement of a deal came amid growing fears that instability in Spain could drag down an already sputtering world economy. The decision was the culmination of weeks of a contentious back-and-forth between Spain and its would-be creditors in which it was hard to tell how much of Spain’s resistance to financial help was tactical maneuvering for a better deal and how much a refusal to admit the depth of the banking sector’s troubles.

The escalating tension prompted President Obama to push Friday, in unusually explicit terms, for quick European action.

European officials have said they wanted their offer to go well beyond Spain’s immediate needs to shield the country from any destabilizing effect from next weekend’s Greek parliamentary election. Spain has fought to avoid the stigma of a bailout and on Saturday portrayed the Europeans’ offer as coming with few strings attached. Although the European statement on the aid package gave few details, it did not mention new austerity measures and said the conditions of the agreement were focused instead on banking reforms, as Spain had requested.

Spanish officials on Saturday denied that their country was in the same position as Greece, Portugal and Ireland, which have all received bailouts that demanded they slash spending. And on Sunday, Mr Rajoy  rejected suggestions that Spain had been pushed to request help ahead of new Greek elections on June 17 that could precipitate Greece’s withdrawal from European monetary union.

Read more at the NYTimes…

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