The 100 billion euro ($125 billion) support package for Spain's banking system is more than twice the minimum required amount estimated by the International Monetary Fund, but a poor economic outlook means the country will likely need a bailout as well, analysts at Capital Economics say.
The country's public debt-to-gross domestic product ratio is relatively low at around 70%, but the banking package will raise it by around 10%, and weak economic growth will continue to hamper efforts to bring the deficit down.
“Against this background, Spain’s fiscal position may soon look rather less favorable relative to the other bailout recipients,” Capital Economics adds.
The analysts praise the swift construction of the support package — in contrast to many of the policy measures during the crisis. And unlike the other bailouts, the agreement does not impose additional austerity on Spain. “Together, these points could reduce the contagion effects on Spain from the ongoing problems in the smaller economies,” they say.
However, there are question marks over what the deal will mean for the already crumbling sense of economic unity across the eurozone. Cries of foul from other bailout recipients whose support packages came with significantly more onerous conditions attached are filling the air.
Citing sky-high unemployment and falling property prices, Capital Economics suspects the full extent of Spanish banking losses has yet to be uncovered.