Over the weekend, Spain asked the Eurogroup for financial aid to help shore up its stumbling banking sector. As expected, the Eurogroup extended a helping hand and responded favorably to Spain’s request. In its press release, European officials expressed support and welcomed Spain’s initiative in asking for a bailout.
In order to receive 85 billion EUR from the Troika in late 2010, Ireland had to agree to adhere to strict austerity measures which some considered to be the harshest in the country’s history. The terms included cost-cutting measures of 6 billion EUR towards the 2011 budget, as well as 15 billion EUR worth of cuts over the next 4 years.
According to Spanish Finance Minister Luis de Guindos, any guidelines and conditions attached to the bailout package will be limited to the banks that need recapitalization, and not to the public sector. Thus, as a country, Spain will be able to avoid further austerity measures.
Greece next to ask for renegotiation?
The funny thing is that Ireland probably won’t be the last country to ask for a renegotiation of current bailout terms. By getting the thumbs up from the Eurogroup, Spain basically just showed the world that it is possible to get a condition-free bailout.
The markets will be looking for Greece to take up Ireland’s battle cry and attempt to revamp its own rescue package. Recall that it also had to swallow a bitter pill and take on big budget cuts and set tough targets just to get financial aid from the Troika.
This development couldn’t have come at a better time for those who have been opposed to austerity. With the Greek elections just around the corner (June 21), the promise of a condition-free bailout like Spain’s might be just what the anti-austerity Syriza party needs to bag election votes.
News of the Spanish bank bailout sent the euro soaring over the weekend, with EUR/USD gapping up well over 100 pips to start the week. But it’s hard to imagine the euro sustaining these gains in the long run.
Spain basically opened the floodgates by asking for a bailout package this weekend. Yes, it might’ve just been a “bailout lite” package, but remember, Spain’s a country that was once said to be too big to be bailed out (and one that had denied its own need for a bailout)!