Spain’s misery about to get worse

MADRID, Spain — Spain’s grinding economic misery will get worse this year, despite the country’s request for a European financial lifeline of up to C100 billion ($125 billion) to save its banks, Prime Minister Mariano Rajoy said Sunday.

MADRID, Spain — Spain’s grinding economic misery will get worse this year, despite the country’s request for a European financial lifeline of up to C100 billion ($125 billion) to save its banks, Prime Minister Mariano Rajoy said Sunday.

A day after the country conceded it needed outside help following months of denying it would seek assistance, Rajoy said more Spaniards will lose their jobs in a country where one out of every four are already unemployed.

“This year is going to be a bad one,” Rajoy said Sunday in his first comments about the rescue since it was announced the previous evening by his economy minister.

The conservative prime minister added that the economy, stuck in its second recession in three years, will still contract the previously predicted 1.7 per cent even with the help.

Spain on Saturday became the fourth — and largest — of the 17 countries that use Europe’s common currency 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.

Although Spain has not yet said how much money it would seek, the eurogroup — finance ministers of the 17-country eurozone, of which Spain is a member — said in a statement Saturday that it was prepared to lend up to C100 billion.

The funds will be sent to the Spanish government’s Fund for Orderly Bank Restructuring (FROB), which would then use the money to strengthen the country’s teetering banks.

Across the country, Spaniards reacted with a mixture of anger and relief to the news. The full amount of the eurogroup’s lifeline amounts to C21,000 of new debt for each person — almost equal to the average salary in a country of 47 million where the unemployment rate for those under age 25 is 52 per cent.

The country is already reeling from deep austerity cuts Rajoy has imposed over the last six months that have raised taxes, made it easier to hire and fire workers, and cut deep into cherished government programs, including education and national health care.

“It’s obviously a shame,” said civil servant Luisa Saraguren, 44, as she strolled on a sunny Sunday morning with her young daughter.

“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.”

Rajoy took pains to avoid the word bailout Sunday, saying Spain’s rescue package is a line of credit that its most troubled banks will be able to tap. The assistance will not come with the outside control over government macroeconomic policy like that imposed Greece, Ireland and Portugal when their public finances were bailed out.

He said interest rates on the loans will be considerably lower than the rate near 7 per cent that Spain has been forced to pay recently on the international debt markets, a level that forced the other countries to seek bailouts.

German Finance Minister Wolfgang Schaeuble said Spain’s debt to GDP ratio was more favourable that even Germany’s, with Spain at 78 per cent of GDP and Germany’s at 82 per cent.

“Spain is making the necessary reforms to improve its competitiveness and to limit its fiscal policy to a sustainable deficit. By the way, Spain’s overall debt (ratio) is lower than Germany’s,” Schaeuble said.

The bailout also spurred Irish opposition finance spokesman Michael McGrath to criticize his government for not having negotiated better terms, saying it needed “to start fighting Ireland’s corner in a more vigorous and forceful way.”

Spain will regain the economic credibility it has lost by shoring up its banks, which will result in credit being restored so businesses and individuals shut off from loans can start borrowing and the economy will grow again, Rajoy insisted, again without saying when.

Europe’s widening recession and financial crisis have 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 government will make a formal approach for aid once independent audits of the country’s banking industry have been carried out.

It is not yet clear whether the money will come from Europe’s current C440 billion rescue fund, the European Financial Stability Facility, or the new C500 billion European Stability Mechanism.

The deal is to be underwritten by the Spanish state, which will use the FROB as its mechanism to funnel the loan to banks in need. Opposition leader Alfredo Perez Rubalcaba said he had discussed the loan with Rajoy and added that for it not to increase the national deficit the entire amount borrowed will have to be paid back to the treasury by the banks, “including the corresponding interests.”

Economy minister Luis de Guindos said 30 per cent of the banking system needed recapitalization. The IMF in its financial stability assessment report said, without listing names, that Spain’s two large internationally active banks “are well diversified.” It is understood that these are Banco Santander and BBVA.

It said seven former savings banks that have received state support “rely significantly on FROB for capital and liquidity support” and that other medium and small private sector banks which account for approximately 11 per cent of domestic banking were also exposed to the real estate and construction sector.

Spain’s financial problems are not due to Greek-style government over-spending. The country’s banks, particularly its savings banks or “cajas,” got caught up in the collapse of a real estate 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.

Some of Spain’s banks are struggling with toxic real estate loans and assets amid fears the problem will get worse as more jobless people can’t pay their mortgages. The Bank of Spain says the toxic loans and assets total around C180 billion. Nationalized lender Bankia SA, which has requested C19 billion in aid, has C32 billion in toxic assets. Around four other banks serving the domestic market were assessed by the IMF report to have large exposure to corporate and retail real estate lending.

“I could never get my mind round the scale of consumption in Spain over the past 20 years, having known it in the 1960s when it was still extremely poor,” said Paul Preston, a history professor and expert on Spain with the London School of Economics. “Lots of people enjoyed the consumer boom, but not everybody. Now everybody’s having to pay for it.”

Rajoy blamed Spain’s woes on the previous Socialist administration of Jose Luis Rodriguez Zapatero without mentioning him or his government by name. Zapatero was ousted by Rajoy in a landslide in November by voters outraged over the Socialist handling of the economy.

“Last year Spain’s public administration spent C90 billion more than it took in. This can’t be maintained. We can’t live like that,” Rajoy said.

But Socialist Party leader Alfredo Perez Rubalcaba said Rajoy should acknowledge that Spain is now in bailout territory.

“The government is trying to make us believe that we’ve won the lottery, that the Three Kings of Orient have arrived, and that isn’t so,” Rubalcaba said.

After his news conference, Rajoy defended his decision to jet off an hour later to Poland to see Spain’s famed national football team take on Italy in the Euro 2012 competition. He said he would be on the ground in Gdansk only for the game before flying back to Madrid on Sunday night.

“I’ll be there 2 1/2 hours and then I’ll leave,” Rajoy said. “I think the national team deserves it.”

Rajoy was seen cheering as Cesc Fabregas equalized to give Spain a 1-1 draw against Italy.

———

Associated Press writers Jorge Sainz in Madrid, Juergen Baetz in Frankfurt and Shawn Pogatchnik in Dublin contributed to this report.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Erika Fetterly, owner of EFP Studios, recently launched the Let Them Have A Voice campaign. (Contributed photo)
Central Alberta photographer’s campaign aims to give youths a voice

An Innisfail photographer is giving a platform to young central Albertans so… Continue reading

Chopped Canada-winning chef Pete Sok is trying to focus on the future as he reopens Boulevard Restaurant and Lounge in the Holiday Inn on Gasoline Alley during the pandemic. (Contributed photo)
Red Deer’s celebrity chef looks past the pandemic with new restaurant opportunity

Pete Sok is reopening Boulevard Restaurant — and betting on the future

The Red Deer Rebels hosted the Medicine Hat Tigers in the first game of the shortened 2020-21 season on Friday. The two teams faced off again in Medicine Hat Saturday (Photo by Rob Wallator/ Red Deer Rebels)
Red Deer Rebels fall to Medicine Hat Tigers on Saturday

Tigers 7 Rebels 2 The Red Deer Rebels have lost two straight… Continue reading

Alberta has 1,910 active cases of COVID-19 as of Wednesday. Red Deer is reporting five active cases, with 108 recovered. (File photo)
Red Deer reports 25th COVID-19 death

415 new cases identified provincially Saturday

Red Deer science-communicating dogs Bunsen and Beaker helped save a missing pet recently. The two dogs have more than 80,000 followers on Twitter. (Contributed photo)
WATCH: Red Deer science dogs help save lost pet

Red Deer science-communicating dogs Bunsen and Beaker helped rescue a missing pet… Continue reading

Alberta Premier Jason Kenney speaks during a news conference in Edmonton on Feb. 24, 2020. It’s budget day in the province, and Kenney’s United Conservative government is promising more help in the fight against COVID, but more red ink on the bottom line. THE CANADIAN PRESS/Jason Franson
Alberta Premier slams vandalism after slur painted on MLA’s office window

EDMONTON — Alberta Premier Jason Kenney is condemning alleged vandalism at the… Continue reading

Canada Pension Plan Investment Board President and Chief Executive Officer Mark Machin waits to appear at the Standing Committee on Finance on Parliament Hill, in Ottawa on Tuesday, November 1, 2016. Executives who engage in so-called "vaccine tourism" show both an ethical disregard for those less fortunate and a surprising lack of business acumen, experts argue. THE CANADIAN PRESS/Adrian Wyld
Vaccine tourism is both unethical and bad for business, experts say

Executives who engage in so-called “vaccine tourism” show both an ethical disregard… Continue reading

Edmonton Oilers' Jesse Puljujarvi (13) and Toronto Maple Leafs' Justin Holl (3) battle in front as goalie Jack Campbell (36) makes the save during second period NHL action in Edmonton on Saturday, February 27, 2021.THE CANADIAN PRESS/Jason Franson
No Matthews, no problem: Minus NHL goal leader, Maple Leafs blank Oilers 4-0

Leafs 4 Oilers 0 EDMONTON — The Maple Leafs knew even with… Continue reading

Leader of the Government in the House of Commons Pablo Rodriguez rises during Question Period in the House of Commons on Parliament Hill in Ottawa, Friday, Nov. 20, 2020. THE CANADIAN PRESS/Justin Tang
Gummed-up bills in House of Commons: harbinger of a federal election?

OTTAWA — All federal party leaders maintain they don’t want an election… Continue reading

The Pornhub website is shown on a computer screen in Toronto on Wednesday, Dec. 16, 2020. THE CANADIAN PRESS
Pornhub policies reveal legal gaps and lack of enforcement around exploitive videos

OTTAWA — Serena Fleites was in seventh grade when a sexually explicit… Continue reading

Sean Hoskin stands on a neighbourhood street in Halifax on Thursday, Feb. 25, 2021. Hoskin was diagnosed with COVID-19 almost a year ago with symptoms that still persist. Some provinces have established programs to deal with long-term sufferers but Atlantic Canada, with relatively low numbers of patients, has yet to provide a resource to assist them. THE CANADIAN PRESS/Andrew Vaughan
On East Coast, exhausted COVID-19 ‘long haulers’ hope specialized clinics will emerge

HALIFAX — On evenings when Sean Hoskin collapses into bed, heart pounding… Continue reading

Ottawa Senators goaltender Matt Murray (30) stands in his crease as Calgary Flames left wing Andrew Mangiapane (88), left to right, defenceman Rasmus Andersson (4), Matthew Tkachuk (19), Mikael Backlund (11) and Mark Giordano (5) celebrate a goal during second period NHL action in Ottawa on Saturday, Feb. 27, 2021. THE CANADIAN PRESS/Sean Kilpatrick
Calgary Flames beat Ottawa 6-3 to end Senators’ three-game win streak

Flames 6 Senators 3 OTTAWA — The Calgary Flames used a balanced… Continue reading

Crosses are displayed in memory of the elderly who died from COVID-19 at the Camilla Care Community facility during the COVID-19 pandemic in Mississauga, Ont., on November 19, 2020. The number of people who would have died from a COVID-19 infection is likely to be much higher than recorded because of death certificates don't always list the virus as the cause of a fatality, experts say. THE CANADIAN PRESS/Nathan Denette
Death certificates don’t accurately reflect the toll of the pandemic, experts say

The number of people who would have died from a COVID-19 infection… Continue reading

Most Read