No Joy In Waiting For Rajoy
Spanish Uncertainty Spooks Previous Optimism

Spain's Mariano Rajoy is being pressed to decide on whether Spain wants or rejects a bailout.

Amiel Ungar ,

Rajoy with Monti
Rajoy with Monti

The uncertainty about Spain threatens to put a crimp into an atmosphere of economic feel-good prompted by the Federal Reserve Bank's quantitive easing and the green light for German funding of a European bailout mechanism with, presumably, sufficient firepower to handle all eventualities.

The conservative Spanish government of Mariano Rajoy is being criticized for temporizing over the decision whether to apply for a full bailout or not - and whether Spain is prepared for "conditionality", that in bailout speak means the opposite of what it means in normal parlance. It means that Spain is yielding its economic sovereignty in return for a financial package that will allow the country to overcome the banking crisis, prompted by the collapse of the country's real estate bubble.

Rajoy has been implored to end the uncertainty by the European Union's competition commissioner Joaquin Almunia, himself a Spaniard. Almunia, according to AFP, advised his compatriot to seek a full bailout. Aware that the government had already passed sizable and painful budget cuts, Almunia tried to assure the Spanish government that the European Commission that will be part of a troika overseeing a bailout would not be presenting additional fiscal demands, but would be merely setting a precise timetable for their implementation.

Rajoy's hesitation has been ascribed to his personal nature of preferring to wait out his opponents, or the character of Spain's Galicia region Rajoy's home. More realistically, an aversion to sharing the fate of other governments that subscribed the bailouts and were promptly given the boot by the electorate, is uppermost in his mind.

As has been the case in previous bailouts within the European Union, those who have been the most vocal in pressing Spain to ask for a bailout are countries that fear contagion from the Spanish economic crisis - namely France and Italy.

Germany, the key economic player within the European Union, is of two minds. On the one hand, Germany as well would like to see Spain make up its mind and end the uncertainty. Germany however has a rooting interest in seeing the Spanish government tough it out even if it means that it must pay higher interest. The Germans see bailouts as a last resort measure rather than as a convenience. They are afraid that if substantial amounts are poured into a Spanish bailout it will increase pressures to pour more capital and mainly German capital into the bailout facility.