Spain Celebrates the Honour of Being in Debt

By JEREMY WARNER | THE TELEGRAPH | JUNE 12, 2012

Only this one may not even succeed in buying time – I give it less than a month before some such other piece of bad news comes along to fire the crisis anew. Like all the others, the latest fix seems to create as many problems as it solves. The euphoria in markets at Spain’s rescue lasted all of a few hours; having bounded away at the opening, they ended broadly flat.

But please don’t call it a bail-out. It may walk, talk and look like a bail-out, but to the Spanish premier, Mariano Rajoy, Spain’s handout is completely different to the three rescues we’ve already seen, even though at €100bn (£81bn)– or some 10pc of Spanish GDP – it’s quite a bit larger than that of Ireland and Portugal.

No doubt mindful of the fact that every political leader who has agreed on a bailout to date has been defenestrated soon afterwards, Mr Rajoy has attempted to snatch victory from the jaws of humiliation by proclaiming the €100bn of aid an unparalleled triumph. Don Quixote himself would have struggled to see such majesty in all too self evident defeat.

To Mr Rajoy, however, the Spanish aid is no more than “the opening of a line of credit for our financial system”, which because Spain has been such an exemplary to others in accepting austerity without complaint, has been offered more or less unconditionally. I suspect Mr Rajoy is in for a bit of a shock once he sees the fine print, but for him, the important thing is getting it across to his electorate that Spain is not being bailed out. Honour has to be seen to be maintained.

Unfortunately, the reality is altogether different. This is not a direct line of credit to the Spanish banking system, but a sovereign loan which expands the national debt by getting on for 20pc. The fact that all of it is going to be used to prop up the banking sector is no more than cosmetic for an underlying truth – that it is Spanish taxpayers who are left with the liability. Spain is being forced to borrow from Europe to bailout its banks because markets won’t provide the money directly to Spain.

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