Photo: Wikimedia Commons
Spain is getting a bailout.The final details aren’t out yet, but according to all the statements from everyone, in the coming days, Spain will ask for up to 100 billion EUR from the European Financial Stability Fund to recapitalize the banks. The exact amount is subject to some audits.
Anyway, the expectation now is that starting Sunday night, markets are going to see a huge pop higher, though it’s worth noting that Spain’s IBEX has been surging all week, so this outcome has been baked in for a while.
But more broadly, there are two reasons why this (might) be a big deal.
First, Europe has found a way to use its bailout mechanisms (The EFSF) in a way that doesn’t turn the receipient of the aid into a basket case “programme” country. At least in theory, Spain should still be able to access the market on Monday to fund its government, as it has done pre-bailout. This separates it from other bailout recipients like Greece or Ireland or Portugal. So that’s one thing.
But beyond that, this is a bailout without restrictions. Spain needed money for its banks, and other European countries (in some manner or another) are footing (or at least backstopping) the tab. Spain doesn’t have to fire a bunch of bureaucrats now or privatize state agencies. Again, this is a big difference from other recipients of foreign aid in Europe, and it’s the kind of outcome you’d expect in an economy that’s moving closer towards real burden-sharing.
This almost certainly isn’t the “solution” in Spain. We’ve been down this road far too many times to be fooled by any talk about problems being solved. But as a proof-of-concept, that transfers or guarantees can happen like this, it’s a big deal.