BRACE YOURSELVES: SPAIN’S NO-AUSTERITY RESCUE PACKAGE WILL LEAD TO EU COUNTRIES RENEGING ON THEIR BAILOUT AGREEMENTS
By Becket Adams
The Blaze reported earlier this afternoon that Spain had finally caved and asked the European Union to save its ailing banking sector with a bailout of up to $125 billion (€100 billion). When news of the Spanish bailout broke, this was also reported [emphasis added]:
Economy Minister Luis de Guindos said Saturday the aid will go to the banking sector only and so would not come with new austerity conditions attached for the economy in general. A statement from the finance ministers of the 17 countries that use the euro explained that the money would be fed directly into a fund Spain set up to recapitalize its banks, but underscored that the Spanish government is ultimately responsible for the loan.
Did you catch that? Spain scored itself a massive no-strings-attached bailout deal. Clearly, this sets them apart from the other eurozone countries that were forced to agree to austerity measures in order to be eligible for financial aid.
But, for lack of a better comparison, the EU is like a family. And as anyone with siblings can tell you, when one kid gets special treatment, all the kids want special treatment. And that’s exactly what is brewing in Ireland.
“Ireland wants to renegotiate its rescue plan to benefit from the same treatment as Spain, which looks set to win a bailout for its banks without any broader economic reforms in return,” the AFP reports.
“Ireland [wants] to ensure parity of the deal with Spain retroactively on its bailout from EFSF [European Financial Stability Facility],” an EU government source told AFP.
The rescue package Ireland agreed to back in November 2010 involved an injection of €85 billion ($112 billion) from the European Union and the International Monetary Fund. Of course, in order to get their hands on all that money, they had to agree to austerity.
So why was Spain given a sweetheart deal? That’s exactly what leaders in the Emerald Isle want to know.
“Dublin plans to raise the issue during the next meeting of eurozone finance ministers to be held June 21,” the AFP reports.
You know what this means, right? Ireland isn’t going to be the only bailed out country crying foul.
You know who else is going to be unhappy about this?
“[W]ith Ireland on the renegotiation train, next comes Greece. Only with Greece the wheels for a bailout overhaul are already in motion and are called a ‘vote of Syriza on June 17.’ And remember how everyone was threatening the Greeks with the 10th circle of hell if they dare to renegotiate the memorandum?” writers at Zero Hedge ask.
“Well, Spain just showed that a condition-free bailout is an option. Which means Syriza will get all the votes it needs and then some with promises of a consequence free bailout renegotiation. In other words Syriza’s Tsipras should send a bottle of the finest champagne to de Guindos — he just won him the election,” Zero Hedge adds.
Indeed, if you thought the situation in the EU was dire, consider a scenario where previously rescued countries decide to renege on the terms of their bailouts. And why not? If Spain gets an unconditional bailout, why not Greece?
“Congrats Germany: you have now opened the Pandora’s box of infinite moral hazard, bailout renegotiations and unconditional rescues. Anything less than a pari passu bailout to Spain’s, which the economy minister touted as having no political strings attached, will incite a revolution,” Zero Hedge adds.