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Spain is bailed -- but questions remain

By Nina dos Santos, CNN Anchor
June 10, 2012 -- Updated 1649 GMT (0049 HKT)
  • Spain is the fourth eurozone country to receive financial aid through Europe's bailout funds
  • But Spaniards would rather talk about the country's chances on the football pitch than the financial markets
  • That's because many unanswered questions remain, including how much aid the banks will need
  • But containing the Spanish problem is paramount to restoring confidence in the single currency

Madrid (CNN) -- A day after Spain became the fourth eurozone country to request financial aid, the man on the street in Madrid would rather talk about the country's chances on the football pitch than on the financial markets.

The reason? Spain's deal probably raises more questions than it answers at this point.

"They are trying to play it down and say it's business as usual -- but it is a really big issue,'' says Eduardo Segovia, financial correspondent for the online newspaper El

"People are angry. They are unsure about what this will mean for them. They don't know what to think or when this money will be paid back."

After nearly three hours on the phone, eurozone finance ministers this weekend decided to commit €100 billion euros -- $125 billion-- to help the club's latest ailing member. And for its part, Spain promised to formally assess how much it needs.

When a bailout is not a bailout

Key to the discussions was how to pitch Spain's aid package as anything but a bailout. Addressing journalists in Madrid, Prime Minister Mariano Rajoy repeatedly called it "a credit line" instead.

Eurozone talks amid Spain bank crisis

At times he appeared frustrated with persistent questioning about why his country was different from other insolvent eurozone neighbors like Portugal, Ireland and Greece.

Spain's crisis has real estate roots

"I don't want to go into the minutiae. This is a line of credit. It will not affect the country's total debt," he said.

Either way, Segovia says the meaning is clear. "They don't want to call it one but it is one. We are getting the money from the European Union for our banks because we can't afford to bail out our banks."

Reading the fine print

I don't want to go into the minutiae. This is a line of credit
Mariano Rajoy

Spain's predicament is a complex one.

In power since December, its new government has moved quickly to reform the labor market and cut public debts, but the total hole on the balance sheets of its banks has remained the big unknown.

Facing rising borrowing costs for its public debt, and damage to its credit score, Spain can ill-afford to raise the money its banks need to meet Europe-wide capital requirements.

This is why it has had to ask for help at cheap rates from the eurozone.

Yet Spain's bank rescue may prove tricky to implement.

Here's why.

We don't know yet how much money its banks will need.

The release of two independent, government commissioned reports will help authorities put a figure on that later this month. The International Monetary Fund reckoned $50 billion could be an appropriate amount, but the market consensus suggests it could be twice as much.

Another unknown is how much time Spain will be given to pay back the cash and what kind of conditions could be applied.

"We'll need a long time to pay it back. It could be up to 15 years. A short loan of three to five years wouldn't make any sense," says Segovia.

Spain's new leaders have been internationally praised for their unwavering commitment to austerity.

So it's unlikely that creditors will be given much of a say on how the country should be run.

However, if Spain ends up with more favorable terms than other bailed out eurozone countries, then that could cause friction in places like Ireland. It was pushed into a full sovereign bailout after its banks sought billions in help -- the same situation facing Spain.

The funds committed to Spain will be channeled through the eurozone's permanent and temporary bailout funds, the European Stability Mechanism and European Financial Stability Facility respectively.

But because those structures were designed for country-wide bailouts, Spain will still have to take the debts onto its sovereign books before it can be disbursed to the financial sector.

At $1.4 trillion, Spain is the eurozone's fourth-largest economy and a key member of the bloc.

With the eurozone facing pivotal elections in another troubled country, Greece, containing the Spanish problem is paramount to restoring confidence in the single currency.

Many of the crucial details will emerge over the next few weeks. But for the moment, politicians in Madrid continue to say it's not the Spanish bull that's running on empty -- but the Spanish banks whose cupboards are dry.

The rest of the world can only watch, and wait.

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