Although the Spanish government refuses to tell the truth to the citizenry, both the government and the banks have clearly been bailed out by the Eurogroup. Spain’s financial entities, undercapitalised due to their huge exposure to the housing bubble, will receive a capital injection of around 100 billion euros (roughly 10% of Spanish
Some may think that the Spanish crisis ends here - that once its main black hole has been closed, credit will start to flow again, lowering unemployment levels and pushing up
And these doubts remain as high as ever: national solvency as a whole is not better off one single iota after the bailout; the hidden losses of banks have just been transferred to the government liability side and lastly to Spanish families and firms, who now owe 100 billon euros more than a week ago. In no sense, therefore, should this bailout be seen as a final solution to our problems: on the contrary, things may become much worse in the medium term.
The fact that no explicit conditions have been imposed on the Spanish government just means that, despite now being much more indebted than before, no additional efforts to reduce its deficit (8.9% of
This is why the lack of conditions associated with the Eurogroup’s loan is not necessarily good news for the Spanish economy. It is definitely great news for the government, who will be enjoying of 100 billion euros without being bound to further reduce its expenditures; but not for those of us who eventually are going to repay this loan with higher taxes instead of lower governmental spending. The bailout has only allowed something that without this intervention would never have happened in the market: our government has increased its liabilities by 10% of
It does not seem to be the wisest policy to have a healthy banking system at the expense of an unhealthy and vampirised private economy. Don’t allow the irrational euphoria to mislead you: the government is better off (but just in the short run), bankrupt banks are better off, but families and firms are much worse off. This is the true result of the European bailout: increasing indebtedness for taxpayers; no real austerity for tax-receivers.
Juan Ramón Rallo is Director of the Juan de Mariana Institute.