Is a Spanish Bailout Coming?

The Economist asks why Spain has not yet taken full advantage of the bond buying scheme announced by European Central Bank President Mario Draghi, a plan that was designed specifically to aid countries in Spain’s economic condition.

Spanish Prime Minister Rajoy’s reluctance to admit Spain’s need for a bailout has complicated the ability of the European Central Bank to assist Spain in its recovery.

With 25% unemployment, a recession, and failing banks, Spain’s economy needs an infusion of capital in the near-term and economic restructuring in the long-term.

But this news is not palatable for Spanish voters who only just put the center-right People’s Party in power in November 2011. Fearing a similar fate as the governments in Greece, Ireland, and Portugal which faced electoral defeat after accepting a bailout, Rajoy’s People’s Party avoids admissions of Spain’s currently dire state as well as its need for any kind of outside advisors.

To his credit, the prime minister has introduced austerity measures and has trimmed the budget substantially but none of it may be enough to stave off what many experts see as Spain’s inevitable need for a bailout.

As with Greece, however, timing is key in the launch of a Spanish bailout: to both minimize collateral damage as well as swiftly execute the planned financial maneuverings without political or social complications. The abdication of sovereignty that many states within the euro are faced with when dealing with bailouts and taking assistance from the ECB is likely to be the subject of debates about monetary union in the months to come.


[The Economist]