You know that something is seriously wrong with your economy when you tell an audience of learned academics and students at an elite university that your country doesn’t need a bailout, and the room rings with the sound of laughter.
That’s what happened when Spanish finance minister Luis de Guindos took to the stage at the London School of Economics (LSE) and became an unexpected comic figure on Thursday evening.
“Spain doesn’t need a bailout at all,” de Guindos said, straight faced and somber, as mirth spread throughout the audience — even de Guindos’ assistant interpreter couldn’t mask a smile.
Not to be perturbed by the disbelieving audience, whose giggles audibly spread throughout the room, de Guindos said that Madrid’s reform program was sufficient to stave off a full sovereign bailout and that the European Central Bank’s (ECB) bond-buying program would suffice to help Spain recover.
“What we have is a proposal from the European Central Bank to trigger intervention in the secondary market with certain conditions,” he said. “They have demanded that in order to intervene … they want certain conditionality.”
De Guindos, speaking in broken but clear English, said that Spain supported the ECB’s bond-buying scheme and that there was a distinction between Spain seeking a full bailout that would be overseen by the troika (the ECB, the European Commission and the International Monetary Fund) and accepting the enhanced credit line that the ECB is offering through bond buying, called the Outright Monetary Transactions.
De Guindos stated that as well as the ECB’s actions it was important that “the commitment of European institutions for the future of the euro” was demonstrated in the form of a commitment to fiscal union.
“Spain is going to actively support a banking union for the euro zone, a fiscal union for the euro zone,” he said. “In order for Spain to recover, it's extremely important to dispel and to eliminate all doubts about the future of the euro.”
As in comedy, timing is everything and de Guindos’ comments come after weeks of speculation and market frustration over whether or not Spain will seek a bailout.
The nervousness and chagrin of European stock markets has been seen in Spanish bond yields edging up towards 6 percent and a week of choppy trade as Spanish Prime Minister Mariano Rajoy denied a report that he would seek a full bailout for Spain this weekend.
Descending from comedy to farce, the finance minister’s presentation was interrupted by protestors in the LSE audience holding a banner saying “Spain for Sale” and heckling the minister. Unpopular austerity measures have caused several days of protests in Madrid as thousands of demonstrators called for the end of budget cuts and the dissolution of government.
De Guindos told the London audience that Spain faced no other choice.
“Sometimes governments have to take unpopular decisions,” de Guindos said. “I fully understand the discouragement of the population because of these measures, but we believe these measures are totally necessary to return Spain to a stable situation to return to growth in the future.”
Despite the laughter caused by de Guindos’ bailout comment, the economic reality confronting Spain is sobering. Unemployment now affects one in four people, and businesses, large and small, are abandoning the country in droves causing government tax revenue to tumble.
Added to pressure on the government is a forthcoming decision by Moody’s, which could downgrade the country’s credit rating to junk status, along with warnings from Fitch and the country’s central bank governor issued on Thursday.
The chances of any light relief for Prime Minister Rajoy look slim as he attends the so-called Club Med summit in Malta this weekend.
Rajoy will meet his French and Italian counterparts, Mario Monti and Francois Hollande at the summit.
Reuters reports that Italy and France, fearing contagion from Spain into their own beleaguered economies, will look to persuade Spain’s leader to cut to the punchline — and seek a bailout.