14 Jun, 2012 @ 12:53
1 min read

Spanish bailout no more than a sticking plaster

THE €100 billion bailout of Spain’s banking sector has been dismissed as a ‘sticking plaster’ solution to the country’s economic woes.

It comes after initial market gains quickly dissipated amid fears of further financial fall out.

Dubbed ‘bailout lite’, the relaxed terms of the package have caused anger in other bailed out countries including Ireland and Greece.

Both are subject to much more stringent terms.

“The bailout is yet another sticking plaster on the eurozone’s fractured edifice, for which there are still no long-term plans,” said Ruth Lea, economic adviser to the Arbuthnot Banking Group.

Anger at the lack of stringent measures imposed on Spain comes as it emerged Prime Minister Rajoy urged his finance minister not to give in to pressure from EU leaders over the terms of the deal.

In a text he wrote: “Resist, we are the 4th power of the EZ. Spain is not Uganda.”

A follow-up message said: “We are powerful, and if they don’t give in, the whole thing will go down.

It will cost Europe 500 billion if Spain goes bust, and then another 700 billion if Italy goes bust.”

The financial markets initially responded positively to the bailout, but borrowing costs on 10-year Spanish bonds rose sharply to 6.5 per cent on Monday, while the euro slumped again against the pound.

Rajoy has publicly acknowledged that the recession will continue to bite in Spain, despite the rescue fund easing the problems of a banking sector struggling with billions of euros of debt related to the failed property sector.

Eloise Horsfield

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