Spain relieved, angry over humiliating bank rescue

MADRID Spains grinding economic misery will get worse this year, despite the countrys request for a European financial lifeline of up to 100 billion euros ($125 billion) to save its banks, Prime Minister Mariano Rajoy said Sunday.

A day after the country conceded it needed outside help following months of denying it would seek assistance, 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, Rajoy said 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, will still contract the previously predicted 1.7 percent in 2012 even with the help.

Spain on Saturday became the fourth and largest of the 17 countries that use Europes common currency to request a bailout. This is a big blow to a nation that a few years ago took pride as the continents economic superstar only to see it become the hot spot in the eurozone debt crisis. Its economy is the eurozones fourth largest after Germany, France and Italy.

Although Spain has not yet said how much money it would seek, the Eurogroup finance ministers of the 17-country eurozone, of which Spain is a member said in a statement Saturday that it was prepared to lend up to 100 billion euros.

The funds, which will come from one of three pools of emergency financing eurozone countries can access, will be sent to the Spanish governments Fund for Orderly Bank Restructuring (FROB), which would then use the money to strengthen the countrys teetering banks.

Across the country, Spaniards reacted with a mixture of anger and relief to the news. The full amount of the eurogroups lifeline amounts to 21,000 euros of new debt for each person almost equal to the average salary in a country of 47 million where the unemployment rate for those under age 25 is 52 percent.

The country is already reeling from deep austerity cuts 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 programs, including education and national health care.

Its 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 weve been living with already.

Rajoy took pains to avoid the word bailout Sunday, saying Spains 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.

He said interest rates on the loans will be considerably lower than the rate near 7 percent that Spain has been forced to pay recently on the international debt markets, a level that forced the other countries to seek bailouts. The government will be responsible for collecting repayments from the banks, with interest, and returning the money to the Eurogroup, although interest rates and loan duration details have not yet been revealed.

It is not yet clear whether the money will come from the EUs 440-billion-euro European Financial Stability Facility, the new 500-billion-euro European Stability Mechanism, or a combination of the two.

The deal is to be underwritten by the Spanish state, which will use the FROB as its mechanism to funnel the loan to banks in need.

Spains financial problems are not due to Greek-style government over-spending. The countrys banks, particularly its savings banks or cajas, got caught up in the collapse of a real estate bubble in 2008 that got worse over the past four years.

But, as Spains leaders have struggled for a solution the countrys borrowing costs have soared close to the level that forced the governments of Greece, Portugal and Ireland to seek rescues.