N’S government bowed to the inevitable over the weekend and asked the Eurozone for a bailout to recapitalise its devastated banks.
The Eurogroup backed the request, praising the government’s efforts to reform the economy, and offering up to €100bn (£81bn) from the Eurozone’s bailout funds.
The bailout announcement came after a week in which Spain’s credit rating was slashed close to junk status by agency Fitch and the government’s borrowing costs rose above six per cent at a 10-year debt auction.
Leading lender Bankia had already called for a €19bn bailout, and Liberbank, Ibercaja and Caja 3 are set to merge after making heavy losses.
Prime Minister Mariano Rajoy confidently declared that the €100bn deal had “resolved” the banking crisis, allowing him to fly to Poland to watch the Spanish football team take on Italy.
“If the crisis had not been resolved, I would not be travelling for hours to be there,” he said.
The PM also refused to call the arrangement a “bailout” or “rescue”, preferring to term it a “credit line”. He argued the deal will not come with the same stringent financial strings attached that the Irish, Greek and Portuguese governments faced when they were bailed out by the Eurozone.
That lack of conditions is in part because the Eurogroup believes Rajoy has already shown his determination to trim the budget deficit and so does not need additional monitoring.
“The Eurogroup notes that Spain has already implemented significant fiscal and labour market reforms and measures to strengthen the capital base of the Spanish banks,” it said in a statement.
“The Eurogroup is confident Spain will honour its commitments under the excessive deficit procedure and with regard to structural reforms, with a view to correcting macroeconomic imbalances in the framework of the European semester.”
A secondary reason may also be that the International Monetary Fund will not take part in this bailout – it does not give funds purely for bank bailouts – and so its stringent lending criteria will not be applied to this rescue.
The bonds will instead come from the European Financial Stability Facility or its permanent successor the European Stability Mechanism, both of which are backed by Eurozone governments.