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De Guindos’ announcement didn’t sit well with the Spanish people. A hashtag on Twitter sprouted that expressed the feelings of many in Spain: #rajoycobarde (Rajoy coward). While leaving Guindos to face the press, Rajoy jetted off to Gdansk, Poland to watch the Spanish national soccer team play in the European championships. A recent poll shows Rajoy’s approval dropping to 37% while unhappiness with his government’s policies approaches 65%.
The bailout will throw up a firewall for Spanish banks ahead of the Greek elections on June 17 which may bring to power a government unwilling to carry on with the austerity measures demanded by the EU, the European Central Bank, and the International Monetary Fund, which negotiated a $172 billion bailout of Greece last spring. That eventuality would lead to a cutoff in aid and an almost certain Greek default — a turn of events that would drive Athens off the euro and back on the drachma with consequences that would almost certainly threaten the stability of the Spanish banking sector.
Prime Minister Mariano Rajoy tried to put the best face on the humiliation. He refused to use the term “bailout” when discussing the bank rescue during his news conference on Sunday, saying “Europe is offering Spanish banks a credit line that they will have to pay back.…There is no macroeconomic conditionality for the country, but for the banks that receive it.” In fact, he denied any such thing as a bailout was occurring, adding, “If we hadn’t done what we’ve done in the last five months, we would have been discussing yesterday a bailout for the Kingdom of Spain,” he said.
Elsewhere, the bailout was making waves with other nations who received EU cash in return for harsh austerity measures. In Ireland, opposition finance spokesman Michael McGrath criticized his government for having failed to negotiate better conditions on their bailout, saying it needed “to start fighting Ireland’s corner in a more vigorous and forceful way.” Sinn Fein’s finance spokesman Pearse Doherty said “Many Irish people looking at the deal this morning will be asking themselves why is there one set of conditions for us and another for Spain.”
But real trouble is brewing in Greece where the radical socialist Alexis Tsipras, leader of the far-left SYRIZA coalition, is seeking to make political hay out of the generous terms given to Spain. Tsipras, who is telling voters they can ignore austerity demands by the EU and still remain in the euro zone, said, “The developments in Spain confirm the position we adopted from the start – that the crisis is a pan-European problem, and the way it has been handled so far has been socially catastrophic and completely ineffectual.” Even the pro-bailout parties have been forced by political necessity to promise to renegotiate some of the harsher terms of the agreement. Not surprisingly, spokesmen for the EU, the ECB, and the IMF have all rejected that notion.
Early Monday, world markets reacted favorably to the Spanish bank bailout, easing fears of a fiscal crisis that would spread to other countries and cause a meltdown similar to the one that brought about the Great Recession in 2008. But the rally may be shortlived. With Greece on the edge of political chaos, fears of what might happen if Athens is forced to leave the euro zone could ratchet up the tension once again and endanger the shaky financial system along the entire southern periphery of the EU.
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