The leaders of the European Union have ordered the Spanish government to accept up to 100 billion Euros in loans to bail out its tail-spinning financial sector, but will this so-called “credit extension” really help pull the economy out of recession and curb soaring unemployment?
Story Transcript
Noah Gimbel: I’m here in Madrid, Spain, where leaders from the ruling right-wing
Popular Party have recently announced an agreement reached with leaders of
the European Union member-states on a bailout package for the Eurozone’s
fourth-largest economy.
The Spanish government will be obliged to borrow up to 100 billion Euros from
the German-dominated European Stability Mechanism. Those funds will then be
distributed to the country’s underwater banks by a specially-appointed executive
body known as the Fund for Orderly Bank Restructuring – FROB by its Spanish
initials.
Following weeks of official statements denying that Spain sought a bailout,
leaders did their best to define the move as an “extension of credit” to the
Spanish economy, assuring the public that there would be minimal foreign
intervention in the country’s fiscal policymaking.
Luis de Guindos is minister of economy.
DE GUINDOS: What we’re getting is financial support, this has absolutely nothing
to do with a bailout, whatsoever.
Spanish President Mariano Rajoy spoke to the press on Sunday before heading
to Poland to watch the Spanish soccer team compete in the Eurocup.
RAJOY: I won’t enter into semantic debates, all I want to say is that Europe will
make available to the Spanish financial entities that need it, a line of credit which
those entities will need to repay. This has nothing to do with the situation in other
countries, it doesn’t place macroeconomic conditions on our country, there will
only be conditions placed on the recipients – the financial entities. But to enter in
semantic debates doesn’t make sense in the least. What we have is a line of
credit from europe for the Spanish financial entities.
GIMBEL: In the week since the announcement, the Spanish risk premium –
that is, the price of Spanish debt – has remained high. And interest rates
on 10 year bonds have exceeded 7% for the first time since the country’s
adoption of the common European currency.
The exact size of the bailout will be determined by two private financial
consultants – one American and one German. According to official sources cited by Reuters, their audit of the Spanish banking system concluded that some 70 billion Euros will be needed to fill the holes left by years of speculation in a massive real estate bubble. And next week, the government will take that audit to the G-20 summit to determine just how much money will buy them some semblance of
financial stability.
The Real News sat down with José Antonio GarcÃa Rubio, federal secretary of
economy and employment for United Left, Spain’s third largest political party. To
GarcÃa Rubio, the bailout was anything but a victory.
GARCIA RUBIO: Obviously, the bailout is an imposition by the EU, it’s by no
means an achievement of our government. What the bailout has done – passing
the debt to the public sector by means of the FROB rather than the banks who
receive the money – was imposed by Germany. And the primary consequence of
this bailout is that the debts and the speculative holes in the books of the banks
will need to be paid off by the citizens through the national debt. In other words, a
transformation of private debt into public debt, which is unacceptable.
On the other hand, despite what the government says, the national debt could
grown to comprise up to 10% of the GDP. Though it may come at lower interest
than the market rate, it still will shrink the state’s financing capacity because of
this huge addition to the national debt. And of course, we’ll have to pay interest,
which will be added to the government budget and thus to the deficit. If, for
instance, the country is required to borrow 70 billion Euros at 3%, that means 2.1
billion Euros in annual interest. 2.1 billion more that will have to be cut in
education, in healthcare, in the salaries of public sector employees, etc.
So yes, there are macroeconomic consequences, and there are consequences to
the budget cuts. Moreover, the comments of the Eurogroup, which the
government tried to hide, establish a much stricter monitoring system over
government policy, and they establish that what were up to now
recommendations from Brussels will become obligations. In other words, we’ll be
under close inspection by the European Commission. I think that this will bring to
the country more unemployment, more suffering, more difficulty recovering from
the crisis, and a harder time paying the debt. Because if a country gets poorer,
it’s in worse conditions to pay off its debts than it would be were its economy to
develop. Those are the most important consequences.
But hanging over all of this is the great doubt. The Bank of Spain owes foreign
banks 1 trillion Euros – how is it going to pay that back? When? In 20 years? 30
years? 40? Because the bailout money has nothing to do with that, it’s meant to
fill the holes in the banks’ balance sheets. But the hole that the bank of Spain
represents in the books of the banks in the US, in Germany, in France that have
lent money to Spain – how is that resolved? How can the credit be renegotiated?
We don’t think this is the solution – not even close. But we will fight to keep the
bailed-out banks in the public sector. Because if they’re not kept in the public
sector, we’ll have the same problem: there won’t be credit for either small
business or families.
GIMBEL: But according to the ruling Popular Party, it was precisely the public
sector and the excesses of the welfare state that led to the debt crisis in the first
place. To the Spanish Left, however, the crisis arose from cyclical, systemic
problems. Problems rooted deeply on the European continent that have spread
throughout the world.
GARCÃA RUBIO: It’s a consequence of a production model that we have called
perverse. The economic model didn’t change much over the course of the
transition from dictatorship and the development of democracy – a model based
on real estate speculation, based on the indebtedness of companies and
families, based on very little research, development and innovation, on the
maintenance of trade deficits, and pollution. And adding to this, a model based
on low salaries and few social protections.
So when the PP talks about how we lived beyond our means, they’re hiding the
fact that salaries in Spain are much lower than similar countries in Europe. For
example, minimum wage in Spain is less than half the minimum wage in France.
They hide the fact that social spending is 7 points, as a percentage of GDP,
lower than the European average.
GIMBEL: And for the foreseeable future, austerity measures will continue to
shrink, and privatize, the welfare state.
Meanwhile, Spaniards await to find out just how much additional debt they’ll need
to assume in order to stabilize the country’s financial system as the future of their
own country remains highly unstable.
For the Real News, I’m Noah Gimbel in Madrid, Spain.
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