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Spain heading for bailout in euro crisis

June 8, 2012 at 5:30 PM   |   Comments

MADRID, June 8 (UPI) -- Mixed signals from the European Union rattled markets as EU senior officials weighed the prospect of Spain opting for an international bailout of its troubled banks.

A multibillion-dollar rescue of Spanish banks has risks for German Chancellor Angela Merkel, already under pressure from the opposition over what critics see as a discredited austerity program that promised to lift Europe out of its current crisis.

Merkel and former French President Nikolas Sarkozy were seen as the chief architects of an EU fiscal compact that aimed to straitjacket the 17 member countries in the eurozone and force down spending. But Sarkozy was ousted in a May election that put Francois Hollande in power, leaving Merkel to fend for herself amid growing opposition to the austerity plan.

After this week's downgrades of several key German banks and more downgrades predicted, Merkel is under increasing pressure to resist any new crisis resolution that commits Germany to more cash handouts.

However, Spain's fiscal crisis has gotten worse and not eased by EU and Spanish government measures. A bailout is seen as inevitable unless EU ministers can agree on a costly rescue plan for Spain.

EU ministers were divided Friday on whether to help out Spain or wait for Madrid to devise its own recovery plan.

Dutch Finance Minister Jan Kees de Jager said a bailout for Spain cannot be ruled out, as the situation was "urgent." Spain says it wants to wait for the results of an overall independent audit of its troubled banking industry, expected in a few weeks, but analysts say the country may not have so much time.

Deputy Prime Minister Soraya Saenz de Santamaria told a news conference, "Once the estimates of the numbers are known with regard to what the financial sector might need, the government will state its position."

Spain has resisted a bailout not only because of the humiliation it would cause -- a potentially damaging blow to Prime Minister Mariano Rajoy -- but also because of the tough economic regime that a bailout would impose on the country.

Previous bailouts of Greece, Ireland and Portugal have faced criticism they are too harsh and unlikely to stimulate growth in the affected countries.

The European Union is under increasing pressure from the international community to resolve the eurozone crisis at it threatens to spill over in other economies.

U.S. President Barack Obama said European leaders faced difficult decisions but the United States was ready to support the EU while it made those tough decisions to try and rescue the euro.

Obama said a deep new recession in Europe would affect the U.S. economy.

Greeks will go to the polls June 17 to try and end a political impasse that EU leaders say is harming Greece's ability to tackle its economic crisis.

Obama said Greece's future in the eurozone was a matter for the Greek people but further hardship could be expected if the country chose to leave the euro.

© 2012 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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