Spain's grinding economic misery will get worse this year despite the request for a European financial lifeline of up to $125 billion to save its banks, Prime Minister Mariano Rajoy said on Sunday.
A day after the country conceded it needed outside help following months of denying it would seek assistance, Mr. Rajoy said more Spaniards will lose their jobs in a country where one out of every four are already unemployed.
“This year is going to be a bad one,” Mr. Rajoy said on Sunday in his first comments about the rescue since it was announced the previous evening by his Economy Minister. The conservative Prime Minister added that the economy, stuck in its second recession in three years, would still contract the previously predicted 1.7 per cent even with the help. Small businesses and families starving for credit will eventually get relief as the funding props up banks and they increase lending, but Mr. Rajoy didn't offer guidance on when.
Spain on Saturday became the fourth and largest of the 17 countries that use Europe's common currency to request a bailout a big blow to a nation that a few years ago took pride as the continent's economic superstar only to see it become the hot spot in the eurozone debt crisis. Its economy is the eurozone's fourth largest after Germany, France and Italy.
Across the country, Spaniards reacted with a mixture of anger and relief to the news. The amount of the rescue fund, if all is tapped, amounts to 21,000 of new debt for each person in the nation of 47 million where the average annual salary for those with work is about the same amount and the unemployment rate for those under age 25 is 52 per cent.
The country is already reeling from deep austerity cuts Mr. Rajoy has imposed over the last six months that have raised taxes, made it easier to hire and fire workers, and cut deep into cherished government programmes including education and national health care.
“It's obviously a shame,” said civil servant Luisa Saraguren, 44, as she strolled on a sunny Sunday morning with her young daughter. “But this bailout was fully predictable, and the consequences of this help are going to be a lot bigger compared to the cuts we've been living with already.”
Mr. Rajoy took pains to avoid the word bailout on Sunday, saying Spain's rescue package is a line of credit that its most troubled banks will be able to tap. The assistance will not come with the outside control over government macroeconomic policy like that imposed Greece, Ireland and Portugal when their public finances were bailed out.
Spain will regain the economic credibility it has lost by shoring up its banks, which will result in credit being restored so businesses and individuals shut off from loans can start borrowing and the economy will grow again, Mr. Rajoy insisted, again without saying when.