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Bailout of Spain

Posted by: rodgersa | November 29, 2010 | No Comment |

There has been much debate over Spain’s economy and whether Spain needs a bailout or not. So far Greece and Ireland are the two countries that have been bailed out, and Portugal may be the third country to seek aid. However, Spain’s economy is twice the size of these three countries combined, and any bailout of Spain could cause trouble for the European currency, the euro. Spain’s banking system has been weaker than the government thinks because of their bad real estate loans, and borrowing costs have continued to rise. However, people like Elena Salgado, Spain’s finance minister, said that Spain would not need to be bailed out. One good thing is that a large amount of Spain’s government debt is owed to its own banks rather than lenders from other countries. But this could also make banks have huge losses because the Spanish banks will lessen the terms on the loans they give out.

Moreover, Spanish banks could be in worse trouble if Portugal’s financial problems get worse as well. Spain is Portugal’s biggest trade partner but Spanish banks also hold $78 billion of Portuguese debt. To try and cope with these problems, Spain has been setting spending cuts to cut their deficit. While this may help, Ireland had also cut spending and cut their deficit but still needed a bailout, and this fact expresses only bad news for Spain and Europe’s economy. Stronger European nations will be hurt if they continually have to help the weaker nations who are struggling economically. If Spain can find a way to cope with their financial situation without a bailout, then all of Europe will greatly benefit. Hopefully Spain’s government and financial minister will realize that Spain’s situation is much more drastic than they think.


under: Alysia, Reflexiones, Otoño 2010

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