Saturday, June 9, 2012

Bailed out?

Today the Eurogroup (the Ministers of Economy and Finance of the countries that use the Euro as currency) has announced an economic loan of up to 100,000 million € to the Spanish government, so that the Spanish financial system can "clean" the huge debts the banks have since the crash of the real estate bubble in 2008. The loan will be at low interest rate and will arrive in Spain through the EFSF (European Financial Stability Facility) and the ESM (European Stability Mechanism), emergency institutions created to help the EU countries with financial problems. The Spanish FROB (Fund for Orderly Bank Restructuring) will receive the funds and lend them at very low interest rate to the banks which need to "recapitalize" and the Spanish government will be the final responsible for this help and the use the banks give to the money. But is this a bailout? Is this something similar to what happened to Greece, Ireland and Portugal?

- The bailouts provided to Greece, Ireland and Portugal were mainly focused on reducing the State debts and included a lot of instructions to do it: reduction of the retirement pensions and civil servants´ salaries, increase of the VAT and other taxes, dismissals of public workers...

- The amount of money Spain is going to receive is similar to the bailouts received by Greece, Ireland and Portugal: 
  • Greece received 110,000 million € in May 2010 and 109,000 additional million € in July 2011. 
  • Ireland received 85,000 million € in November 2010
  • Portugal got 87,000 million € in May 2011.

- Apparently, the bailout to Spain doesn´t include additional conditions for the Spanish government, because the economic help has been presented as an injection of capital to the banks in trouble. It seems that the Eurogroup has decided to test a different solution for Spain, the 4th economy of the Eurozone and considered to be "too big to fail". The Eurogroup might have decided changing strategy and lending money to the banks directly and not to the country. This means that the banks would be the ones to fulfill the conditions imposed by the Eurogroup, not the Spanish government. 

We should wait some days to realize the real implications of this bailout they don´t want to define as such. But if we look back, we´ll see that when the economic crisis started in 2007 and the USA banks had problems in 2008, the Federal Reserve bailed them out with 700,000 million dollars. The USA started its recovery first. The European Union decided to follow a different way: austerity and deficit control above all. This policy has brought a lot of cuts, the biggest attack to the Welfare State up to date, hundreds of thousands of unemployed... As we can see, the people who are in charge of the governments don´t want to learn from the past. Or maybe they forget about the parts of history that don´t fit with their plans?

Eurogroup statement on Spain:

And here you have a complete report about Spain´s situation prepared by the BBC website. It includes graphs and a questions and answers´section:

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