Spain and the euro crisis: when €100bn doesn't fix much

http://www.guardian.co.uk/commentisfree/2012/jun/10/spain-and-euro-crisis-editorial

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Defending Spain's receipt of one of the largest eurozone bailouts yet, prime minister Mariano Rajoy on Sunday described it as a "victory": a victory both for Spain and for the European project. "It was the credibility of the euro that won," he declared to journalists before flying off to Poland to see Spain take on Italy in that other Euro sporting tournament. "If the banking situation was not resolved, I would not go."

Resolved? Not so fast. Whatever Mr Rajoy or the White House or the IMF might say, the deal that was announced on Saturday evening settles very little, but instead opens up many more questions – for Madrid, for the ordinary Spanish, for the country's banks and for the euro. The only thing that is absolutely certain is that Mr Rajoy's acceptance of a €100bn (£80bn) credit line marks a new phase in the euro crisis. First, it confirms that the scale of the problem is far bigger than previously suggested: Spain's economy is almost twice as big as the three other countries that are already in the euro bailout ward. Second, Madrid can't be dismissed as a spendthrift administration along the lines of Lisbon or Athens.

That the state has nevertheless been locked out of financial markets is in part down to the gross failure of eurozone policymakers to get in front of this crisis. No such resolution is offered in the package that was agreed over the weekend, either. Spain's bailout does not draw any line under the eurozone's crisis. There is no allusion to eurobonds or a banking union or any of those other ideas that float up in ministerial speeches and thinktank pamphlets. Nor is there any commitment to a serious continent-wide growth strategy. This merely invites shell-shocked financiers and wary business people to speculate on which other nations will land up in the euro sick bay. Such speculation is unlikely to begin immediately, but one can imagine a torrid few months in the financial markets. Before all that, though, there are the problems raised by the financial lifeline offered to Spain. First, for all the emphasis on the term "bank bailout", this is a debt that will be put on the government's balance sheets. Spanish taxpayers will eventually have to pay for it. In other words, the population with the highest unemployment rate in the EU will have to spend decades repaying a debt incurred to rescue feckless savings banks, often run by useless managers and their crony directors. How that's taken by the nation that kickstarted the protest movement that went on to become Occupy is an open question, but the most likely answer is: badly.

Nor should Spanish voters be impressed with Mr Rajoy's boast that this slug of cash does not come with the European/IMF austerity programme that was forced on Ireland, Greece and Portugal. It is not much of a secret that the previous Socialist prime minister, José Zapatero, was forced in 2010 to adopt an austerity programme after intense pressure from Angela Merkel. This latest lifeline also appears to have been thrust on Madrid, which is still awaiting its own commissioned report on the state of its banking sector – presumably to soothe any jitters in the market ahead of Greece's rerun of its general elections this weekend. But the no-strings loan to Mr Rajoy will encourage politicians in Athens, Dublin and Lisbon to push to renegotiate their own rescue packages. In Greece, Alexis Tsipras and the leftwing Syriza coalition will be using this argument in their campaigning.

The more one looks at this bailout – which doesn't seriously address the restructuring of Spain's banks – the more it seems an unwitting invitation to speculate on which other eurozone members might soon be in the markets' firing line. Spain's financial situation is in some respects better than France's and very close to that of the Netherlands. Pessimistic? Maybe. Then again, just a couple of months ago Mr Rajoy was dismissing any suggestion that he would ask for a bailout. "Spain is not going to be rescued; Spain can't be rescued. There's no intention and no need and so Spain will not be rescued." And look what happened to him.