Tags: Spain | Financial | Crisis | pain

Spain: Economic Pain to Deepen Despite Bank Rescue

Sunday, 10 June 2012 10:23 AM EDT

Spain's deep economic misery will get worse this year despite the country's request for a European financial lifeline of up to 100 billion euros ($125 billion) to save its banks, Prime Minister Mariano Rajoy said Sunday.

Spain will stay stuck in its second recession in three years, and more Spaniards will lose their jobs in a country where one out of every four are already unemployed, Rajoy told reporters a day after the country became the fourth — and largest — of the 17 countries that use the common currency to request a bailout.

"This year is going to be a bad one: Growth is going to be negative by 1.7 percent, and also unemployment is going to increase," Rajoy said.

Spain will regain the economic credibility it has lost by shoring up its banks, which will result in credit being restored so businesses and individuals shut off from loans can start borrowing and the economy will grow again, Rajoy said. But he didn't offer guidance on how long that could take.

And that, Rajoy insisted, in turn should help restore credibility to the eurozone, which has been shaken for more than two years by the financial crisis.

Europe's widening recession and financial crisis has hurt companies and investors around the world. Providing a financial lifeline to Spanish banks is likely to relieve anxiety on the Spanish economy — which is five times larger than Greece's — and on markets concerned about the country's ability to pay its way.

Another huge test for Europe comes next week when Greece holds elections that could determine whether it leaves the single currency. European leaders said it was crucial for Spain to have help lined up for its banks before the June 17 balloting.

Rajoy repeatedly refused to call the rescue package a bailout, saying it is a "line of credit" that is different than bailouts taken by Greece, Ireland and Portugal because their lifelines include strict outside control over public finances — and Spain's does not.

Rajoy blamed Spain's woes on the previous Socialist administration of Jose Luis Rodriguez Zapatero without mentioning him or his government by name. Zapatero was ousted by Rajoy in a landslide last November by voters outraged over the Socialist handling of the economy.

"Last year Spain's public administration spent €90 billion more than it took in, this can't be maintained, we can't live like that," Rajoy said.

He also defended his decision to jet off Sunday afternoon to Poland to see Spain's famed national football team take on Italy in the Euro 2012 competition. He said he would only be on the ground in Gdansk for the game and would be back in Madrid late Sunday night.

"I'll be there two and a half hours and then I'll leave," Rajoy said. "I think the national team deserves it."

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Sunday, 10 June 2012 10:23 AM
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