Spain could receive next bailout as its financial woes worsen

A financial bailout could come sooner than expected for Spain as its economy continues to falter, further deepening the European financial crisis set off by Greece. 

The Spanish economy has hit new lows in recent months. Steep declines in bonds and shares have led Spain’s market regulator to impose a three-month ban on short-selling shares. Its economic output dropped again in the second quarter. 

Pedro Schwartz, an economics professor at San Pablo University in Madrid, said the country’s economic woes were visible in the streets, as more and more shops close and houses go up for rent or sale.

“The property market and the retail market are suffering very heavily,” Schwartz said. 

Ongoing budget cuts provide temporary financial relief, but they come at a price. Reductions in pensions, unemployment benefits and year-end bonuses for civil service workers have been widely unpopular, sparking protests and demonstrations across the country.

“That is making people angry,” Schwartz said. “One feels that there’s more anger among ordinary people.”

Europe’s economic woes reach well beyond Madrid. Earlier this week, the euro fell to its lowest value against the U.S. dollar in two years, causing global stocks to drop.

As European leaders search for new solutions to the growing crisis, many are looking to Germany.

But a German bailout of Spain would be very difficult to achieve, said BBC reporter Chris Morris. He said it would be difficult to draw the line at Spain, especially after European leaders said they would contain the crisis in Greece. If Spain received a bailout from Germany, Morris said, Italy would be next. He said bailing out the two countries is more than Germany can handle.

Though Spain doesn’t need to borrow money immediately, it will in the next couple of years. And if the interest rates to borrow money remain as high as they are now, Morris said, Spain won’t be able to afford it.

“That’s where it becomes a problem for the euro zone,” he said. “And a big problem for the euro zone becomes a problem for everyone because it’s such a big part of the global economy.”

To make matters worse, the implementation of Greece’s bailout hasn’t warmed up German leaders to the possibility of funding another one. Germany’s credit rating was threatened by Moody’s, a financial rating group, because of Greece’s inability to meet its agreed-upon conditions for the bailout.

“Time and again, Greece is not meeting its targets,” Morris said. “Patience, each time, gets a little thinner. This time, it really feels like we’re pretty close to the edge of the cliff.”