Spain Moves to the Head of the Bailout Line

Getting bailout money from the Eurogroup is very difficult — until it suddenly is not. Because the body has become so concerned about the financial situation of Spain and its banks, the nation quickly will receive nearly $39 billion by the end of this month, mostly to aid private financial firms. Spain will get this money, and a total of nearly $120 billion in aid, even though it will need an extra year to reach its financial targets. That pushes the date of reckoning to 2014. The pressure to aid Spain stands as an example that the Eurogroup will break its own rules about bailouts, if its members believe that immediate problems are more important than strict bailout regulations. The action also means the process of getting aid to troubled nations will become increasingly chaotic as problems spread unevenly across the region.

“The Eurogroup supports the recently adopted Commission recommendation to extend the deadline for the correction of the excessive deficit in Spain by one year to 2014,” ministers said in a statement. There really was no choice in the matter. Spain’s banks are near collapse, in part due to trouble in the country’s real estate market. Spain’s economy is in recession. Unemployment sits at more than 25%. But Spain’s most recent major problem is its most acute one. The nation’s tax receipts have been eroded severely by employment attrition and a disintegration of its business sector.

The term “kicking the can down the road” is often used to describe European leaders’ inability to address sovereign debt problems resulting from recession and a lack of economic stimulus. It the case of Spain, the analogy is not apt. Spain’s problems are so severe and entrenched that the road is too long for kicking to work.

Douglas A. McIntyre