Markets were trading on a positive note this morning after Spain announced on Saturday a $129-billion deal to refinance its ailing banking sector. That optimism, though, seems to be fading already as investors ponder the details of the deal and start fretting about the Greek election next Sunday.
On Sunday, Spanish Prime Minister Mariano Rajoy insisted financial aid for his country was unlike the bailout packages given to Portugal, Greece and Ireland, saying that it would require Madrid to reform its banks, but not dictate harsh austerity measures.
European Union Competition Commissioner Joaquin Almunia, however, had a word of advice for Spain: “Whoever gives money, never gives it for free,” he said. “There’re people coming here [to Spain] to make sure the money will be properly used,” Almunia said on Spanish radio Cadena Ser, as quoted in the Wall Street Journal.
According to Reuters, German Finance Minister Wolfgang Schaeuble said the International Monetary Fund, the European Central Bank and the European Commission would oversee the process of restructuring Spain’s faltering banks, as the European Commission combs through Spanish state finances.
The bank rescue package will add up to 10 percentage points to Spain’s debt-to-gross-domestic-product level, taking it close to 90 percent, while the country faces a grinding recession, with nearly one worker in four unemployed.
Some economists believe Spain will eventually need a full state bailout, and that Italy may be next in line because of a similar combination of high debt and no economic growth, despite reforms initiated by Prime Minister Mario Monti.