Spain Bank Bailout Will Just Kick Eurozone Problems Down the Road

So Spain is the latest country within the Eurozone saga to formally ask for money. 

A decision was made last night that Spain would be able to have access to 100 billion euro to inject capital into the Spanish banking sector. The prime minister is pleased with his efforts to protect the financial sector while the people of Spain are in dire crisis.

Spain's economic problems have now become a whole lot more complicated and will lead to further shocks down the road. The right-wing party won the recent election and now has the mandate to drive through their policies without having to seek support from any other political group as they have an absolute majority.

The solution is to give the banks money so that they can start lending to small businesses and individuals, to kick start the economy again. It seems like I am living on another planet but that way of reviving does not work anymore. 

Firstly, consumers are in enough debt as is with Spanish default levels at a record high. Thousands of empty houses from the boom times line the coastlines, young people are leaving to work in service sector jobs around Europe, small businesses will not have enough customers to pay back the loans if they take them up in the first place.

The second problem is that the initial economic crisis happened because banks were lending money to people then selling those bad loans around. If more money is given to those bankers then they will continue to make bad decisions and pay themselves hefty bonuses for the privilege.

One argument for the bailout is that it will create a firewall against a Greek exit from the Eurozone, Spanish banks would be able to take the shock without collapsing. Another is that Spain needs the money to ensure that businesses and consumers have access to much needed loans like other parts of Europe.

What people should realize is that if Spain takes the money then there will be strings attached. The country will have to cut its deficit dramatically, which will lead to more cuts in the education and health systems, a labor reform and a huge tax rises. So, there will be some short term gain but the Spanish government seem to be intent on just kicking the problem down the line?

My solution would be to let those banks that are in trouble go to the wall and if they need to accept the bailout money, that should be used to inject much needed capital into the social system.

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Jason Grant

Freelance journalist and media trainer who is interested in explaining the world of politics to people who have no interest.

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