Right up until the €100 billion bailout deal for Spanish banks was announced at the weekend, Spain was at great pains to explain that it did not require a bailout and could obtain the funding it needed to service its debts from the market. This is true to the extent that the bailout will be provided to shore-up Spain’s banking sector only and will not feed into state coffers. As a consequence of this fact; and because Spain has already introduced strict austerity measures on its own behalf, the deal will not require Spain to agree to further austerity plans.
The move has been warmly welcomed by politicians and has seen both the markets and the value of the Euro rally on the news, but some caution that the move may not be enough if external factors (i.e. Greece) cause a fresh round of Euro jitters. The wild card remains the electoral choice of angry Greeks – if the left-wing Syriza party forms the next administration and honours its pre-election pledge to tear-up the austerity measures that went with the EU/IMF bailout, it is difficult (make that impossible) to see how Greece could remain in the single currency.
The Spanish banking crisis has its roots in the bursting of a property bubble which left banks with large amounts of bad debt on their books in the midst of the global financial crisis - which, of course, had its own origins in sub-prime mortgages. News of the move briefly dropped the yield on Spanish 10-year bond below the 6% mark. Spain will hold new bond auctions on the 19th and 21st of June; shortly after the Greek election.
Spanish Prime Minister Mariano Rajoy suggested that the move was in the interest of the Euro and stressed that it was the banking sector which was being helped: "If we had not done what we have done in the past five months, the proposal yesterday would have been a bailout of the kingdom of Spain". So with the Spanish banking system shored-up, for now at least, all eyes are on Greece.