Spain Hesitates Over Bailout Request
Markets Wait as Spain Hesitates Over Bail-Out Request
Selah Hennessy
October 05, 2012
LONDON — The Spanish government is analyzing its options before deciding on whether it needs a bailout, the Deputy Economy Minister Fernando Jimenez said Friday. But, most European leaders and the financial markets, are hoping the request will come sooner rather than later.
This time last year all eyes were on Greece as Europe's economic weak link. But now the attention has shifted to Spain, the European Union's fourth largest economy. Many fear the country could default on its debts unless it gets a bailout from its euro neighbors.
The European Central Bank has offered to help struggling European economies by buying debt in the secondary sovereign bond markets.
That could help lower Spain's borrowing costs and might assure wary markets of stability among nations that use the euro currency. But first, Spain has to decide it wants to get the help.
Speaking in London, Spain's economy minister Luis de Guindos, admitted that Spain is in trouble.
"You are fully aware that we have a soaring debt crisis. Spain is the focus of attention about many of the problems that the eurozone is suffering. I would say even that the future of the battle of the euro is going to be waged in Spain," said de Guindos.
But de Guindos denied that his country needs a bailout. Many wonder if he is right.
Spain's economy plummeted when the local housing market bubble burst - leaving Spanish banks with over a billion dollars in bad loans.
Now concerns are high that Spain is unable to keep the banks afloat while a gap in its national budget grows and the economic recession deepens. Almost five million people are unemployed: One in four Spaniards out of work, the highest rate in the European Union.
But Iain Begg from the London School of Economics says Spain has reasons to avoid taking a bailout.
"Spain doesn't want to be put in a position of being told by Brussels how to run its economy so it's on a knife edge at the moment about whether it will seek a formal bail out," said Begg.
To make matters worse for the Spanish government, it is also facing internal dissent. The northern province of Catalonia, which represents one-fifth of the Spanish economy, is calling for independence after Spain rejected a demand to grant the region special fiscal powers.
Police clash with protestors during a demonstration against austerity measures announced by the Spanish government, at the parliament in Madrid, Spain, September 26, 2012.x
Police clash with protestors during a demonstration against austerity measures announced by the Spanish government, at the parliament in Madrid, Spain, September 26, 2012.
Costas Lapavitsas from London's School of Oriental and African Studies recently wrote a book called "Crisis in the Eurozone," arguing that cash-strapped states should quit the euro. He says if Spain asks for a bailout it will be forced by Brussels to impose stringent austerity.
But Spain, he says, is already reeling from tough austerity and more of it will not do anything to improve the stagnating economy.
"Spain needs root and branch change. It needs a major investment strategy. It needs to do something about its productivity growth. It needs to do something about new sectors of the economy. It needs major economic transformation. It's not going about it the right way and not within the monetary union I'm afraid," said Lapavitsas.
With plenty of unknowns on the horizon, the European Council is set to meet later this month, when many hope some conclusive decisions will be made.