Spanish bank bailout tied to Greek elections
Spain's $125 billion bank bailout probably would have waited a week or more except for the Greek parliamentary elections scheduled for this coming Sunday.
That's because it is probable that even if a pro-bailout party, such as Antonis Samaras' New Democracy, wins the most seats, the former prime minister is on the hook after telling voters he will renegotiate some of the harsher terms imposed by the EU for the bailout.
That dog won't hunt, according to the Germans and ECB officials. Hence, even if the radical left is denied, Greece may still be forced to exit the euro.
At the moment, those leaders are working to protect the rest of the euro zone from whatever happens when Greece votes Sunday. Greece's anti-bailout politicians have wagered that the unpredictable consequences of the currency union's kicking out a member will force Europe to support them regardless. The urgency with which Spain was pushed to take a bailout - the International Monetary Fund sped up by three days an estimate of how much money the country's banks might need - is a sign of continued worry among Europe's leaders that Greece's anti-bailout agitators are right: Their country is too important to write off.
In the United States, President Obama is worried that bad economic news from Europe could dampen America's struggling recovery, and with it his reelection chances. He has, in recent days, expressed unusually direct concerns about Europe's management of the crisis.
For now, Europe is still playing hardball with Greece, and the bailout of up to $125 billion for Spain may help leaders keep up their stiff resolve against Greece. Germany's central bank said last month that Greece's exit from the euro zone would be difficult but "manageable" for the rest of Europe.
But the balancing act - talking tough with Greece, while taking big steps elsewhere to guard against turmoil spreading if Greece votes for the bailout critics - is a reminder of the uncertainty Europe still faces. Even with the rescue program for Spain, an anti-bailout victory in Greece could push the borrowing costs of Spain and Italy even higher, analysts say. The countries are large enough that if Italy needs aid and Spain needs more help, Europe's bailout funds might not be able to come up with the money.
Spain got fairly generous terms for this bailout; they don't have to take any more austerity measures, and they can finance the bank bailout with lower interest rates than they'd get on the open market. This has enraged some Greeks who believe that if radical socialist leader Alexis Tsipras plays his cards right, his SYRIZA coalition might sweep to victory next Sunday. The pro-bailout parties are painting the election as a referendum on staying with the euro and treating Spain differently than Greece as far as terms of for a bailout will weaken that argument considerably.
The bottom line: A Greek exit or potential exit -- which may come quickly or slowly; nobody knows -- would have almost certainly undermined the already weak Spanish banking sector and that might have caused a dominoe effect across Europe.
"If Spain got into a catastrophic situation, you could forget French and German banks," Luxembourg Finance Minister Luc Frieden told the broadcaster RTL on Sunday.
That's why the deal had to go down this weekend as the entire continent scrambles to avoid being sucked into the malestrom that will occur if Greece exits the euro.