Spain relieved, angry over humiliating bank rescue

By Alan Clendenning

Associated Press

Published: Sunday, June 10 2012 2:51 p.m. MDT

A man rests outside a bank advertising their bank rates and pension plans in Madrid Sunday June 10, 2012.

Associated Press

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MADRID — Spain's grinding economic misery will get worse this year, despite the country's request for a European financial lifeline of up to €100 billion ($125 billion) to save its banks, Prime Minister Mariano Rajoy said Sunday.

A day after the country conceded it needed outside help following months of denying it would seek assistance, Rajoy said more Spaniards will lose their jobs in a country where one out of every four are already unemployed.

"This year is going to be a bad one," Rajoy said Sunday in his first comments about the rescue since it was announced the previous evening by his economy minister.

The conservative prime minister added that the economy, stuck in its second recession in three years, will still contract the previously predicted 1.7 percent in 2012 even with the help.

Spain on Saturday became the fourth — and largest — of the 17 countries that use Europe's common currency to request a bailout. This is a big blow to a nation that a few years ago took pride as the continent's economic superstar only to see it become the hot spot in the eurozone debt crisis. Its economy is the eurozone's fourth largest after Germany, France and Italy.

Although Spain has not yet said how much money it would seek, the Eurogroup — finance ministers of the 17-country eurozone, of which Spain is a member — said in a statement Saturday that it was prepared to lend up to €100 billion. The funds, which will come from one of three pools of emergency financing eurozone countries can access, will be sent to the Spanish government's Fund for Orderly Bank Restructuring (FROB), which would then use the money to strengthen the country's teetering banks.

Across the country, Spaniards reacted with a mixture of anger and relief to the news. The full amount of the eurogroup's lifeline amounts to €21,000 of new debt for each person — almost equal to the average salary in a country of 47 million where the unemployment rate for those under age 25 is 52 percent.

The country is already reeling from deep austerity cuts Rajoy has imposed over the last six months that have raised taxes, made it easier to hire and fire workers, and cut deep into cherished government programs, including education and national health care.

"It's obviously a shame," said civil servant Luisa Saraguren, 44, as she strolled on a sunny Sunday morning with her young daughter. "But this bailout was fully predictable, and the consequences of this help are going to be a lot bigger compared to the cuts we've been living with already."

Rajoy took pains to avoid the word bailout Sunday, saying Spain's rescue package is a line of credit that its most troubled banks will be able to tap. The assistance will not come with the outside control over government macroeconomic policy like that imposed Greece, Ireland and Portugal when their public finances were bailed out.

He said interest rates on the loans will be considerably lower than the rate near 7 percent that Spain has been forced to pay recently on the international debt markets, a level that forced the other countries to seek bailouts. The government will be responsible for collecting repayments from the banks, with interest, and returning the money to the Eurogroup, although interest rates and loan duration details have not yet been revealed.

German Finance Minister Wolfgang Schaeuble said Spain's debt to GDP ratio was more favorable that even Germany's, with Spain at 78 percent of GDP and Germany's at 82 percent.

"Spain is making the necessary reforms to improve its competitiveness and to limit its fiscal policy to a sustainable deficit. By the way, Spain's overall debt (ratio) is lower than Germany's," Schaeuble said.

The bailout also spurred Irish opposition finance spokesman Michael McGrath to criticize his government for not having negotiated better terms, saying it needed "to start fighting Ireland's corner in a more vigorous and forceful way."

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