Spain to exit bail-out programme

Spain will on Thursday (23 January) exit the formal programme of austerity measures and structural reforms imposed on the country as part of a €41.4 billion bail-out to recapitalise its stricken banking sector.

A troika of international bodies – the European Commission, the International Monetary Fund and the European Central Bank – that has been monitoring Spain’s compliance with the reform programme is expected to herald Spain’s exit from the 18-month-long programme as further evidence that the European Union’s recipe of fiscal consolidation is working after Ireland emerged from its own bail-out programme in December.

Yet critics say the troika’s policy of swingeing austerity and wide-ranging reforms, adherence to which is a condition of the bail-out, have left Spain with moribund growth, record unemployment at 26% of the economically active population, and an economy that is 6% smaller than it was in 2008.

Spain’s government announced in November that it would not seek a transitional credit line from its lenders, which would have guaranteed Spain access to funds if it was unable to raise credit on international markets, but would have come attached with further fiscal conditions.

Yet the Commission will continue to scrutinise Spain’s economic policies and reforms until the country reins in its spending in line with eurozone rules.

Austerity measures

Spain’s public debt in 2014 is predicted by the Commission to rise to 99.9% of gross domestic product (GDP) in 2014, with the deficit forecast at 5.9% of GDP. As a result, the Spanish government will need to take further austerity measures if it is to comply with EU rules that limit eurozone government deficits to 3% of GDP and public debt to 60% of GDP. The Commission can fine countries that fail to comply with EU budget rules.

In July 2012, Spain was granted a €100 billion bail-out from eurozone member states, though it only drew down €41.4 billion.

Spain’s bail-out differed from previous programmes in that the funds given to Spain were destined exclusively for recapitalising its banks. Consequently, less stringent austerity terms were attached to the bail-out as compared with other programme countries.

Signs of growth

Some positive signs of economic improvement have emerged from Spain in recent months. The Commission forecasts that Spain will return to growth in 2014 for the first time since 2008. Meanwhile, the Spanish government announced in January that it plans to raise €242 billion from the market in 2014; Bankia, which received €36 billion of guarantees and assistance, returned to financial markets last week for the first time since the bail-out.

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Barack Obama, the US’s president, met Mariano Rajoy, Spain’s prime minister, on Monday (13 January) and celebrated the latter’s “great leadership” in difficult economic times.