Spain's pain 'will get worse' despite its €100bn lifeline
Spain's grinding economic misery will get worse this year despite the country's request for a European financial lifeline of up to €100bn to save its banks, Prime Minister Mariano Rajoy forecast yesterday.
A day after the country conceded it needed outside help following months of denying it would seek assistance, Mr Rajoy said more Spaniards would lose their jobs in a country where one out of every four is already unemployed.
"This year is going to be a bad one," Mr Rajoy said in his first comments about the rescue since it was announced.
The conservative prime minister added that the economy, stuck in its second recession in three years, would still contract the previously predicted 1.7pc even with the help.
Small businesses and families starving for credit would get eventually relief as the funding propped up banks and they increased lending, but Mr Rajoy did not offer guidance on when.
Spain became the fourth, and largest, of the 17 eurozone countries to request a bailout -- a big blow to a nation that a few years ago took pride as the continent's economic superstar only to see it become the hot spot in the eurozone debt crisis.
Its economy is the eurozone's fourth largest after Germany, France and Italy.
Across the country, Spaniards reacted with a mixture of anger and relief at the news.
The amount of the rescue fund, if all is tapped, amounts to €21,000 of new debt for each person in the nation of 47 million, where the average annual salary for those with work is about the same amount, and the unemployment rate for those under age 25 is 52pc.
The country is already reeling from deep austerity cuts that Mr Rajoy has imposed over the past six months that have raised taxes, made it easier to hire and fire workers, and cut deep into cherished government programmes, including education and national health care.
"It's obviously a shame," civil servant Luisa Saraguren (44) said. "But this bailout was fully predictable, and the consequences of this help are going to be a lot bigger compared to the cuts we've been living with already."
Mr Rajoy took pains to avoid the word bailout yesterday, saying Spain's rescue package was a line of credit that its most troubled banks would be able to tap with no outside control over government macroeconomic policy like that imposed on Greece, Ireland and Portugal when their public finances were bailed out.
He said interest rates on the loans would be considerably lower than the rate near 7pc that Spain had been forced to pay recently on the international debt markets.
Spain would regain the economic credibility it has lost by shoring up its banks, which would result in credit being restored so businesses and individuals shut off from loans could start borrowing and the economy would grow again, Mr Rajoy insisted.
Europe's widening recession and financial crisis has hurt companies and investors around the world. Providing a financial lifeline to Spanish banks is likely to relieve anxiety on the Spanish economy, which is five times larger than Greece's, and on markets concerned about the country's ability to pay its way.
Spain's financial problems are not due to Greek-style government overspending.
The country's banks, particularly its savings banks or "cajas", got caught up in the collapse of a property bubble in 2008 that got worse over the past four years.
However, as Spain's leaders have struggled for a solution to their banking crisis, the country's borrowing costs have soared close to the level that forced the governments of Greece, Portugal and Ireland to seek rescues.