€100bn bailout could backfire on Spain

Spain's €100bn bank bailout could backfire on Madrid by destabilising public finances and hampering the country’s access to capital markets, experts have warned.

Prime minister Mario Rajoy today hailed the deal with Brussels as a “victory” for Spain and the eurozone, but analysts said it was unlikely to convince financial markets for long. Mr Rajoy’s claims that Spain’s public finances would not be impacted were disputed, even though the details of the deal have not been released.
“A bail-out is a bail-out, Spain, sorry,” said Steen Jakobsen chief economist of Saxo Bank, arguing that the liability for cost will be added to Spain’s public debt, even indirectly.
Open Europe, the London-based think tank, said if Spanish banks take up Brussels’ offer of €100bn in loans, Spain’s public debt would grow by around 10pc.
“If this is a victory - finally dealing with a glaring problem after four years - then we don’t want to see a defeat,” said Raoul Ruparel of Open Europe. “Spanish debt to GDP could be about to jump by 10pc in the near future and given its current path this could put Spain over 90pc debt to GDP, the level beyond which sustainability becomes questionable, much sooner than had been anticipated. This will require adjustments in its reform programme and lead to increasing market pressure.”
Spanish officials said the loan would cost 3pc a year rather than the 6pc-plus that it is costing Spain to borrow on the bond markets.

Spain’s socialits leader, Alfredo Perez Republica, said: “The government is trying to make use believe we won the lottery.”   (Telegraph.co.uk)