Spain Pledges Reforms to Avoid Troika Bailout

Spain pledges reform timetable, paves way for bailout | Reuters.

A view of the city of Toledo. On the right is the castle-fortress known as the Alcazar.

I think that the title of this blog post is more accurate than the headline selected for the article by the editor. Every time a European government requests a bailout, it is thrown out of office. Political survival is driving the decision makers in Spain.

Don’t pay attention to the mainstream media. Spain needs a bailout right now. The fiscal situation is perilous, and it is rapidly bleeding cash from its financial system:

Rajoy’s political survival depends on him getting his hands on German money without the event being construed as a humiliating troika bailout. Germany cannot bailout Spain without humiliating conditions, which makes the aid politically acceptable to its electorate.

What the Spanish government is trying to do is have its own preemptive bailout. By adopting harsh refroms on its own, it hopes that these s will be sufficient and preempt the need for troika conditions with their attendant inspections, loss of Spanish sovereignty and general humiliation.

This is an interesting gambit, but I cannot see it succeeding. If Spain was to obtain a sweetheart bailout, the countries who did not, Portugal, Spain and Ireland, will be miffed, and there will be a backlash.

In any event, Spain will not seek a bailout before regional elections on October 21. If Rajoy does, his party will surely lose these elections. This loss of power could lead to his own government coming down.

We should expect Spain to keep delaying its inevitable bailout requests as long as possible after regional elections. There will be pledges, meetings and negotiations, but there will not be a bailout request until Spain starts bouncing checks.


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