Spanish Bailout Crisis

The Spanish economy is in tatters, and Spain has finally admitted it. Spain has asked the EU for a bailout, but they want one that is very different from the type received by Greece, Portugal and Ireland. In these three countries, in exchange for the money they had to accept crippling austerity and other restrictive measures. Spain does not want to humiliation of having to accept the extraordinarily harsh terms that would be imposed on Spain.

So what deal is Spain trying to get from Brussels and Germany? Well firstly the Spanish government is claiming that they’ll only need €40 billion worth of bailout money, most economists believe that they’ll need closer to €100 billion, with some economists predicting a bailout as big as €400 billion. Regardless, there is enough money set aside in the European system to cope with a big bailout, so that is less of the problem. It is how Spain wants to receive the money, as I’ve explained the Spanish government would be humiliated if told what to do by Brussels and Angela Merkel. Instead rather than the EU/IMF giving money to the Spanish government, which would in turn use the money to recapitalise the banks, the Spanish government wants the bailout to be given directly to the banks so that they don’t have to endure even more austerity.

Currently Spain is playing a game of brinkmanship with (mainly) Germany, neither of them want the destruction of the Spanish economy especially considering the contagion would spread extremely fast around the globe. Although I believe that the crisis will end in a compromise (a direct bank bailout with some austerity and restrictions) I do believe that Germany will be the first to blink as it has much farther to fall the Spain.