Spain's Rajoy hails bank rescue as 'victory for euro'


PM Mariano Rajoy: "Yesterday the future of the euro won"

Spanish Prime Minister Mariano Rajoy has hailed a decision by eurozone finance ministers to help Spain shore up its struggling banks as a victory for the European common currency.

"It was the credibility of the euro that won," he told reporters.

On Saturday, the eurozone ministers agreed to lend Madrid up to 100bn euros ($125bn; £80bn) to help banks hit by bad property loans.

The US and the International Monetary Fund (IMF) also welcomed the move.

Mr Rajoy told a news conference in Madrid that efforts by his centre-right government to restore Spain's public had avoided a wider state bailout.

"If we had not done what we have done in the past five months, the proposal yesterday would have been a bailout of the kingdom of Spain," he said.

The rescue, Mr Rajoy added, would speed up the "flow of credit loans to families, to small and medium enterprises, to self-employed workers".

But he warned that the near future looked bleak: "This year is going to be a bad one." He said that the economy, which is in its second recession in three years, was still expected to shrink by 1.7%.

The rescue fund amounts to about 2,100 euros per person in Spain.

Auditing banks

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If Spain has succeeded, as it claims, in persuading Germany and the other eurozone governments to hand over the 100bn euros with no strings attached that relate to Spain's spending and taxing - to its budget - then Ireland would have a powerful case for demanding a renegotiation of its bailout package”

End Quote

The planned eurozone loans at preferential rates are aimed at bolstering Spain's weakest banks, left with billions of euros worth of bad loans following the collapse of a property boom in recent years and the recession that followed.

The exact amount that Spain will receive will be decided after the completion of two audits of its banks, which Spain's economy minister Luis de Guindos said would be ready within a few days.

The money will come from two funds - the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM), which comes into force next month and will be formally requested at the next eurozone finance ministers' meeting.

Investors have recently demanded higher and higher returns to lend to Spain, making it too expensive for the country to borrow the money needed for a bank rescue from the markets.

The European Union's economic affairs commissioner, Olli Rehn, said the deal should help calm investors' nerves: "This is a very clear signal to the markets, to the public, that the euro area is ready to take decisive action in order to calm down market turbulence and contain contagion."

A statement from the European Commission said it would put Spain on course for economic recovery: "We are certain that Spain can gradually regain the confidence of investors and market participants and create the conditions for a return to sustainable growth and job creation."


Lloyds Banking Group economist Charles Diebel said in a report that the move was "bailout lite" and questioned whether the money would stop the rot: "Will it be enough? That's questionable as it is still prevention rather than cure and again only keeps the banking sector alive rather than really supporting growth."

However the bailout plan was praised by UK Foreign Secretary William Hague.

"We've been asking for the eurozone to take decisive measures to stabilise itself in terms of the European Central Bank supporting the banking system and eurozone countries being prepared to work together in a closer way and integrate themselves more closely fiscally and, for instance, by having eurobonds," he told Sky News.

On Saturday, IMF managing director Christine Lagarde said the plan for Spain should provide "assurance that the financing needs of Spain's banking system will be fully met".

US Treasury Secretary Timothy Geithner said it was "important for the health of Spain's economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area".

Eurozone debt crisis bailouts

Who When How much Main problem


Spanish flag and Bankia branch

June 2012

Up to 100bn euros

Some banks borrowed large amounts to lend out, feeding a property boom. The credit crisis and recession meant billions of euros worth of loans could not be repaid


Greece flag

May 2010 and March 2012

110bn and 130bn euros. Private lenders also wrote off debt

Greece borrowed large amounts for public spending. The financial crisis, combined with deep-seated problems such as tax evasion, left it with massive debts


Portugal flag

May 2011

78bn euros

High government spending and a weak, uncompetitive, economy built up debts it could not pay back

Republic of Ireland

Irish flag

November 2010

85bn euros

Like Spain, a property crash plunged the "Celtic Tiger" economy into recession, saddling its banks, which had lent big to developers and homebuyers, with huge losses


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  • rate this

    Comment number 93.

    Spain's rescue is a victory for the euro, but it is merely an Elastoplast to cure a haemorrhage. What is necessary is a United States of Europe consisting of one government, one President, one currency, and one finance minister.

  • rate this

    Comment number 87.

    Just a small question one which I am sure is completely irrelevant But if the EZ states are all up to their eyeballs in debt where are they finding the money for Spain to borrow? Surely Greece Portugal Italy and Ireland are not lending them any are they? So where is it coming from or are they just increasing levels of debt by giving Spain a loan of imaginary money?

  • rate this

    Comment number 69.

    The real problem is that there is a lot more pain to come and the politicians and bankers are not brave enough to let it happen they know we will blame them, well, we should it is their fault. The last fifteen years of boom have been built on debt now tis time to pay the piper.
    This increase in debt solves nothing it only prolongs the agony and increases the pain.

  • rate this

    Comment number 47.

    This is not a victory, this is just keeping the patient alive on life support.
    The humane thing to do would be to pull the plug !! instead of prolonging the agony. !!

  • rate this

    Comment number 15.

    Oh Lord, if the fact that yet another country needs a financial bailout is a victory for the euro, then I'd sure hate to see a defeat!


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