By Louise Armitstead
10 Jun 2012
Prime minister Mario Rajoy today hailed the deal with Brussels as a “victory” for Spain and the eurozone, but analysts said it was unlikely to convince financial markets for long. Mr Rajoy’s claims that Spain’s public finances would not be impacted were disputed, even though the details of the deal have not been released.
“A bail-out is a bail-out, Spain, sorry,” said Steen Jakobsen chief economist of Saxo Bank, arguing that the liability for cost will be added to Spain’s public debt, even indirectly.
Open Europe, the London-based think tank, said if Spanish banks take up Brussels’ offer of €100bn in loans, Spain’s public debt would grow by around 10pc.
“If this is a victory - finally dealing with a glaring problem after four years - then we don’t want to see a defeat,” said Raoul Ruparel of Open Europe. “Spanish debt to GDP could be about to jump by 10pc in the near future and given its current path this could put Spain over 90pc debt to GDP, the level beyond which sustainability becomes questionable, much sooner than had been anticipated. This will require adjustments in its reform programme and lead to increasing market pressure.”
Spanish officials said the loan would cost 3pc a year rather than the 6pc-plus that it is costing Spain to borrow on the bond markets.
Spain’s socialits leader, Alfredo Perez Republica, said: “The government is trying to make use believe we won the lottery.”
Traders are braced for a volatile day on the financial markets as they wait for details of the deal. Following Spain’s request for help on Saturday, Brussels said it would make €100bn available via the bail-out funds, but it didn’t specify which one.
Mark Rutte, the Dutch finance minister, said that any plan to issue loans to Spain via the European Financial Stability Facility (EFSF) would have to subjected to a parliamentary vote. Finland is also likely to demand a vote of approval.
Experts said the European Stability Mechanism (ESM), which replaces the EFSF in July, could be used instead. However, since ESM debt would rank above private bondholders, loans from this fund could make Spain even less attractive to private investors on the capital markets.
At a press conference today, Mr Rajoy admitted that Spain’s economy would deteriorate despite the deal. “This year is going to be a bad one,” he said. “Growth is going to be negative by 1.7pc, and also unemployment is going to increase.”
He insisted it was a credit agreement, not a rescue, but admitted that “if we had not done [the reforms] we have done in the past five months, the proposal yesterday would have been a bailout of the kingdom of Spain.”
Global leaders welcomed the deal and the eurozone’s efforts to stabilise Spain before the crucial elections in Greece next Sunday. Japanese Finance Minister Jun Azumi called it a “major first step” toward stabilising the European and global economy. US Treasury Secretary Tim Geithner said it represented “concrete steps on the path to financial union, which is vital to the resilience of the euro area.” Christine Lagarde said the IMF “stands ready” to help monitor the loan deal and assess Spain’s progress.
[ed. Italy has had to pay into this fund as well and they are as broke as Spain and not getting any better (in fact getting worse). But you don't need to be an economist to see that giving the guy across the road with a gambling habit MORE MONEY is not going to work in the long term. Besides which, and in true mafia fashion, "we helped you, now we OWN you...]
