Spain finally asks for EU's help and a €100bn bail-out
by Dean Carroll
Following days of speculation, Spain has finally admitted defeat and formally asked for a €100bn bail-out from the eurozone fund – in order to bring some stability to its fragile banking system. But the country's finance minister Luis de Guindos insisted: "This is not a rescue, this is a loan which is given in very favourable conditions, which will be determined in the next few days. But they are very favourable, much more favourable than the market ones."
Spain, Europe's fourth-largest economy, joins a list of troubled states that have been forced to seek help from the eurozone's collective coffers – including Greece, Portugal and Ireland. Those countries were forced to implement crushing austerity reforms and deficit-reduction programmes as conditions of their bail-outs. However, although de Guindos admitted that there would be stringent rules placed on those banks receiving funds – the minister maintained that the sovereign itself would not face "micro-economic conditions", imposed by the euro area grouping.
"We hope that as a result of these injections of capital, families and companies will have more solvent banks which are able to offer them credit; which they are not able to do at the moment," he added. In a statement, the Eurogroup confirmed that it would "respond favourably" to Spain's request for financial help estimated to be a maximum of €100bn. But the Eurogroup warned that "the Spanish government will retain the full responsibility of the financial assistance", despite the cash being passed directly on to the banks.
Further indicating that Spain would be expected to meet its deficit reduction targets in return for the bail-out, the statement added: "The Eurogroup is confident that 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. Progress in these areas will be closely and regularly reviewed also in parallel with the financial assistance."
In response to the bail-out, European Commission President JosÚ Manuel Barroso and vice-president Olli Rehn issued a joint statement welcoming the decision. "The commission is ready to proceed swiftly," they said. "With this thorough restructuring of the banking sector, together with ongoing determined implementation of structural reforms and fiscal consolidation – we are certain that Spain can gradually regain the confidence of investors and market participants, and create the conditions for a return to sustainable growth and job creation."
Joining the chorus of approval, International Monetary Fund Managing Director Christine Lagarde labelled the move a "crucial step" in regaining economic stability. She added: "This scale of proposed financing, which is consistent with the capital needs identified, gives assurance that the financing needs of Spain's banking system will be fully met. The IMF stands ready, at the invitation of the Eurogroup members, to support the implementation and monitoring of this financial assistance through regular reporting."