A day after getting approval for a financial rescue he vowed Spain would never need, Prime Minister Mariano Rajoy said it was his idea all along.
“No one pressured me into this. I pushed for it myself, because I wanted a line of credit,” Rajoy said. He refused to call it a “bailout.” He called it a “victory” instead.
Most Spaniards don’t buy that. In a poll published Sunday, 78 percent of respondents said they have “little or no” faith in Rajoy and his ruling conservatives. That’s just 6 months after they won elections in a landslide.
Over the weekend, Spain became the fourth and largest eurozone country to request a financial rescue. Europe has offered up to $125 billion dollars, but it’s not clear how much of that Spain will need or accept.
Rajoy has tried to reassure the Spanish public this EU loan will come with few strings attached, and won’t affect Spain’s deficit. But economists and EU officials say that’s not the case.
“Of course there will be conditions,” says the EU’s competition commissioner, a Spaniard named Joaquín Almunia. “Whoever gives money never gives it away for free.”
European Union and German officials say there will be oversight. The IMF, the European Commission and the European Central Bank plan to supervise the restructuring of Spain’s banking system.
But because official terms of the bailout haven’t been made public, nor even finalized — it’s their word against Rajoy’s at this stage.
For their part, Spanish leaders point to the tens of billions they’ve slashed from budgets already this year.
Help For The Banks
Economist Gonzalo Garland, at Madrid’s IE Business School, says it’s fair for lenders to set conditions for loan repayment — but not to set policy.
“So it makes sense that you tell me what I have to do in terms of when that money has to be returned, what interest has to be paid, what are the typical financial requirements that make sense,” he says. “But do not tell me when I have to raise the retirement age or what is the level of the pensions. Because that’s not what we need right now.”
What Spain does need is immediate help for its banks, weighed down by real estate debt. But Spain is also struggling with its deficit, which was three times EU limit last year.
An EU loan will make that even worse, according to Megan Greene, with Roubini Global Economics.
“It will certainly be foisted onto the state’s balance sheet, so we will see Spain’s public debt rise,” she says. “That will in turn cause the deficit to rise as the government struggles to pay the interest cost for a higher debt burden.”
That’s not exactly a reassuring prospect.
The bailout news hit this weekend when many Spaniards were preoccupied with European soccer championships, and trying to escape the heat.
At a public pool in downtown Madrid, kids splash unaware as adults discuss the bailout.
“I am unemployed, but in four days, I will travel to Australia. So that’s not a problem for me,” Daniel Blanco Ramos, 34 an information technology specialist. He’s having one last swim before giving up on Spain. He and his friends laugh at how Spanish politicians won’t use the word “bailout.”
“They are trying to use better words,” he says with a laugh, “but the fact is, this is a real rescue.”
Will he come back to Spain someday?
“Maybe one or two years later, we can start to fix our problems, but I think this is not the end,” he says.