Eurozone latest: Spain bowed to the inevitable
After blowing hot and cold over the state of its banks - and that of economy - for weeks, the Spanish government finally asked for external help to shore up the finances of its struggling banks at the weekend.
Mariano Rajoy, the bearded Spanish prime minister, who kept on repeating the slogan, ‘Spain doesn’t need bailouts,’ suddenly found himself sleepwalking towards an abyss when he was forced to do an embarrassing ‘U’ turn while appealing for cash.
Even on Friday last week, the government insisted that it was in a position to deal with the crisis on its own; the reluctance was justified by pointing at two independent audits, that they said, were underway then.
Despite the urgent need of external assistance, the ruling party does not want to be seen as a group going cap in hand before its creditors. “It is a loan with very favourable conditions,” said Luis de Guindos, the finance minister of Spain.
The acute banking problems, both in Ireland and Spain, can be directly attributed to the spectacular collapse of the property bubble. The banks, especially relatively smaller one, which financed the once-booming sector, found themselves entangled in a web of bad loans when property owners failed to pay off their dues.
When the precarious nature of the banks came to light in recent weeks, the customers started withdrawing their deposits en masse while subjecting the former to even more strain.
Although, the situation did not evolve into a partial run on the banks, it sent ripples across the whole continent: the term, ‘deposit flight’ was coined to describe the new development, when the frightened Greeks and Spaniards went after stable currencies like British pound, Swiss franc and US dollar in fear of prospect of returning to their respective old currencies.
It goes without saying how markets are going to react to the news; we have been there before. It is only a matter of time before we are talking about the same issue with amplified anxiety, as the bailout is not going to address the core issues in order to rectify the lingering problem.
The way the present Spanish government reacted to the banking crisis, as if there wasn’t one, indicates how clueless they were to handle even the spinning element of the crisis let alone the nitty-gritty of the game.
- Asian Tribune -