High price for financial aid

Published on 11 July 2012 at 13:08


"EU puts Spain under guardianship," headlines Spanish daily El País following the signing of a memorandum of understanding between the government of Prime Minister Mariano Rajoy and the European Union setting the terms for the bailout of Spanish banks —

The 32 conditions contained in the memorandum could qualify as de facto, though not official, foreign intervention on the entire Spanish banking sector. Because the Eurogroup imposed a total revision of the operation of the Bank of Spain; forced the Finance Minister to transfer his power to impose sanctions to the Bank [of Spain] and demanded the creation of an independent supervisor of fiscal policy. [...] There is, however, some non-negligible, good news: approval for the bank bailout, the release, at the end of the month, of 30 million euros of the 100 million allotted, a moderate re-payment schedule (14 years) and an interest rate of about 4%. The Eurogroup makes it clear that the Troika (EU Commission, European Central Bank, International Monetary Fund) will control the bailout operation.

On July 11, PM Mariano Rajoy confirmed new budget cuts of 65 million euros over the next two years. These will include a reform of the public sector, lower unemployment benefits and an increase in VAT from 18% to 21%. Nonetheless, the Madrid daily criticises the "tardy" government reaction —

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This memorandum can be read in a political light. Faced with the European demands, we can conclude that the reforms undertaken by the Finance Ministry are insufficient, that the budget cuts in Education or Health were not enough to master the deficit. The management of the crisis by the government was not sufficiently credible to inspire confidence to the markets or to European partners.

Conservative daily El Mundo stresses the surrender of sovereignty and the loss of control over "a key sector" of the country's economy. The paper points the finger at the current government's management as well as that of its predecessor, led by socialist José Luís Rodríguez Zapatero —

This is an enormous failure of the Zapatero government [...] but also a fiasco for the Rajoy administration because its timid banking reforms amplified the sector's serious problems. The hasty nationalisation of Bankia [in June] is the perfect example. [...] One wonders what would happen to Spain if the EU were to bailout the economy as a whole, it would be humiliating and would cast doubt on the survival of the conservative Popular Party government. Rajoy has one card up his sleeve to prevent such an intervention: engage far-reaching State reform.

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