Spain's bailout shows all roads lead to Greece
With the Greek election fast approaching, fear is mounting in eurozone nations, spurring the Spanish government to get help for its shaky banks and other leaders to do what they can to protect Europe from whatever happens at the polls June 17.
The Washington Post
Massive Spain was forced to ask for a bailout to keep its banks afloat this weekend. But it was tiny Greece that pushed Spain over the brink.
This Mediterranean nation's 11 million people head to the polls next Sunday with a stark choice between leaders who accept the harsh terms of the bailouts that have kept their country afloat and those who reject them, potentially at the cost of Greece's future on the euro.
Fears that a Greek rejection would panic markets about the eurozone's future pushed Spain to seek the aid ahead of Greece's election.
But the mere possibility of a victory for anti-bailout forces in Greece helped exacerbate Spain's problems in the first place, boosting its government's borrowing costs and causing a slow-motion bank run that weakened its financial system.
That spiraling confidence problem — in which the 17 countries that share the euro currency are united enough to spread their problems to one another but not enough to guarantee an end to them — is what Europe's leaders are racing to fix with a road map to economic integration that could come at the end of the month.
At the moment, those leaders are working to protect the rest of the eurozone from whatever happens in the Greek election. Greece's anti-bailout politicians have wagered that the unpredictable consequences of the currency union's kicking out a member will force Europe to support them even if they reject the bailout terms.
In the United States, President Obama is also worried that bad economic news from Europe could dampen America's struggling recovery, and with it his re-election chances. He has in recent days expressed unusually direct concerns about Europe's management of the crisis.
For now, Europe is still playing hardball with Greece, and the Spanish bailout of up to $125 billion may help leaders keep up their stiff resolve against Greece.
Germany's central bank said last month that Greece's leaving the eurozone would be difficult but "manageable" for the rest of Europe.
But their balancing act — talking tough with Greece, while taking big steps elsewhere to guard against turmoil spreading if Greece votes for the bailout critics — is a reminder of how much uncertainty Europe still faces.
Even with Spain's new rescue program, an anti-bailout victory in Greece could push Spain's and Italy's borrowing costs even higher, analysts say. The countries are large enough that if Italy needs aid and Spain needs more, Europe's bailout funds might not be able to come up with the money.
"If Spain got into a catastrophic situation, you could forget French and German banks," Luxembourg's finance minister, Luc Frieden, told the RTL broadcaster Sunday.
So European leaders have been sending a conciliatory message to Spain and a very different one to Greece.
On Saturday, just hours before Spain asked for the bailout, which will come with many fewer strings than were attached to Greece's, eurozone chief Jean-Claude Juncker told Deutschlandradio that "the substance remains" that Greece needs to get its budget under control.
Greece, which has less than a quarter Spain's population, has received two bailouts in the last two years, adding up to more than twice the money on the table for its larger European neighbor, in part because Spain's problems are more confined to the bursting of a property bubble than to overall failures in its government finances.
Though Spain took the headlines this weekend, the crisis has returned home to Greece, where it started.
European leaders already tried to wall off Greece's problems by pushing the country's private creditors to write off almost three-quarters of what they were owed. That means that if Greece defaults now, Europe's banks have less to lose than they did just months ago, although governments would lose the emergency aid they extended to the struggling country.
Polls show a majority of Greeks still want to stay on the euro, and the leaders of the left-wing Syriza are gambling that Europe's fears about contagion are still too high to kick them off.
"We do not need any task force to tell us what to do," Syriza head Alexis Tsipras said Thursday, the daily Kathimerini newspaper reported.
Addressing a rally, he added that he would not fire any civil servants if he were elected. Reducing the public payroll is a key element of Europe's bailout program for Greece.
Worries that Spain would be next if Greece were pushed out of the eurozone contributed to the flight of depositors in Spanish banks in recent months, weakening them to the point where Spanish Prime Minister Mariano Rajoy was forced to call in help on Saturday after weeks in which he strenuously denied that Spain would need it.
Europe's leaders are trying to build better-unified structures to backstop the eurozone's patchwork financial system, but the proposals that will be discussed at a summit June 28 and 29 would be operational in years, not weeks. The slow pace is caused in large part by Germany, which as Europe's largest economy will bear much of the responsibility of paying for whatever new support measures arise.