Spain Officially under Brussels Rule

By requesting a financial bailout of its banking system and accepting all measures recommended by Brussels, Spain has effectively walked into the wolf’s den.

By LUIS MIRANDA | THE REAL AGENDA | JUNE 26, 2012

The reaction to Spain’s decision to accept a financial bailout for its banking system had immediate reactions everywhere in that country and abroad. First, the decision to request over $100 billion dollars to Brussels to rescue what the country’s Prime Minister says is 30 percent of the banks caused the collapse of the stock market. Second, by the mid afternoon, the adoption of new rules from the European bankers caused Moody’s to downgrade 28 Spanish banks and left Spain’s credit rating just above junk status. Third, The European Union will, as it did with other countries that were rescued, assumed complete power of the budgetary policy of the Spanish government.

On Thursday, European finance ministers will meet to discuss the details of the latest European rescue which implies that Spain will have to adopt every single recommendations originated in Brussels. Any violation to such rules will consequently bring harsh penalties against the peninsular nation. Another issue that will be discussed on Thursday and Friday will be the guidelines that the European government will give each nation that requested a bailout in regards to the supervision that the euro zone leaders will exercise over the banking system and the amount that each government will spend, how and when they will spend it.

Now that Spain is in the bag, European leaders like Herman Van Rompuy, Jose Manuel Barroso, Jean-Claude Juncker and Mario Draghi are proposing to establish a system where there is complete centralized control over the financial sector in each of the countries which will include the economic and budgetary matters. In Spain, economists and TV commentators are already analysing the implications of such a decision, since Spain has no longer anything to say about what is done with its finances. The Prime Minister Mariano Rajoy has said on national television that new and more difficult measures are still to come. Those measures include a 10 percent increase in the sales taxes, which will reach 18 percent. This increase is surely to affect the prices and food and other basic needs.

After the increase in the sales tax or IVA, Spain will have to ‘reform’ its pension system, which will mean that Brussels will also take control over the retirement of millions of Spanish people. Those who have contributed into the retirement system, will have to retire later and take a significant haircut to their benefits once they decide to stop working. That is if they receive any retirement benefits at all. Additionally, the government will also propose a cut in the salaries it pays to workers in the public sector and a considerable reduction in the number of people it will employ once Brussels recommendations are effective.

Although the details of Spain’s bailout are not fully disclosed to the public or the media, leaks provided to some economists in that country detail that the country will have to take care of the bankers’ debt for at least the next quarter of a century while paying an interest rate of between 3 and 5 percent. Spain’s incapacity to meet its obligations was the caused cited by Moody’s for its most recent downgrade, Meanwhile, and as a consequence of such downgrade, Spain will have to continue paying higher interest rates at bond auctions. This situation would get even worse of Spain needed another financial bailout in the near future.

French junior budget minister Jerome Cahuzac, one of the people who meets today with the rest of his European colleagues to work out the details of Brussels meeting on Thursday, has said that it is only fair that Spain also submits its sovereignty just as his own country and many others in the euro zone have done it as a condition to receive so-called rescue packages. “This is what we are talking about, budget solidarity in Europe which implies that not only that the French budget, but also the German, Italian and Spanish budgets be subjected to a review by all our partners,” Cahuzac said.

As we reported yesterday, Spain is now finalizing a memorandum of understanding which will be presented before the Eurogroup on July 9, where the final decisions will be made by the 17 finance ministers who work on behalf of the European bankers. The Spanish economy minister explained that the money loaned to Spain will be managed through the Fund for Orderly Bank Restructuring (FROB), which is supposed to be a state-backed cashier, but that in reality is a banker-controlled window that dictates where will the funds recently requested by Spain will be directed.

As it has happened throughout Europe, most of the measures adopted by governments to supposedly deal with the economic crisis have only tightened the belt of the working class, the people who always take on the heaviest burden when banks decide to collapse a country’s financial and economic system. In the case of Spain, as we have said, the financial rescue of its banks means prices going through the roof, later retirement, less or no retirement benefits, a reduction in the purchasing power for the middle and lower classes and a perpetual state of indebtedness for the next 2 or 3 generations of Spanish people, who will have to work all of their lives to pay the debt incurred into by the Spanish banking system.