Friday, the International Monetary Fund informed the world that, in their estimation, Spain is in need of a bailout of ’round about $50 billion to rescue their banking system and save the country from financial disaster. Today, we learned that the real situation is, in fact, much worse than the original estimate, and that Spain would actually prefer an aid package closer to about $125 billion. Well, fancy that — who could’ve seen that one coming?
Spain is about to become the largest euro economy to seek a bailout (theirs is about the fourth largest economy in the eurozone), following in the bailout-requesting footsteps of Greece, Ireland, and Portugal. This latest request will add to the $480 billion the IMF and European governments have already promised to those three countries.
“The Spanish government declares its intention of seeking European financing for the recapitalization of the Spanish banks that need it,” Spanish Economy Minister Luis de Guindos told reporters in Madrid today. A statement by euro region finance ministers said the loan amount will “cover estimated capital requirements with an additional safety margin.”
Just seven months after winning a landslide victory, Prime Minister Mariano Rajoy was forced to abandon his bid to recapitalize Spanish banks without recourse to external help as a deepening recession forced lenders to recognize spiraling losses. Today’s move means Spain has a firewall in case the Greek election on June 17 unleashes a fresh round of market turmoil. …
The eurogroup statement said that the formal request will come “shortly.” An assessment will then be provided by the European Commission, which will liaise with the European Central Bank, the European Banking Authority and the IMF. There will also be a proposal for “the necessary policy conditionality” that will accompany the assistance.
The “necessary policy conditionality,” presumably, meaning that Spain will have to promise to tighten up its budgetary screws before they get the dinero (of course, Greece promised they’d add a little austerity to their lives, too, and they’re still not doing too hot, so…).
Spain has an unemployment rate of over 24 percent — the highest in the industrialized world right now — but to listen to President Obama and his Keynesian ilk, it’s because of all this ‘draconian’ ‘austerity’ spreading like a contagion across the eurozone. More stimulus!, they insist, as the solution to all of these fiscal woes. Except, where is all of this free money supposed to come from, exactly?
And, hey, let’s take a look at where we are after we spent a boatload of cash to bail out and stimulate a bunch of our major industries in 2009: sittin’ pretty with a whole lot of “too big to fail” banks, stagnant economic growth, continually poor work participation rates, and a three-year non-recovery. Yeah, let’s do more of that.