ATHENS — Massive Spain was forced to ask for a bailout to keep its banks afloat this weekend. But it was tiny Greece that pushed Spain over the brink.
This Mediterranean nation’s 11 million people head to the polls next Sunday with a stark choice between leaders who accept the harsh terms of the bailouts that have kept their country afloat and those who reject them, potentially at the cost of Greece’s future on the euro. Fears that a Greek rejection would panic markets about the euro zone’s future pushed Spain to seek the aid ahead of Greece’s election.
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Unemployment and Europe’s fallen leaders
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An interactive look at the situation in Europe and how it affects you.
But the mere possibility of a victory for anti-bailout forces in Greece helped exacerbate Spain’s problems in the first place, boosting its government’s borrowing costs and causing a slow-motion bank run that weakened its financial system. That spiraling confidence problem — in which the 17 countries that share the euro currency are united enough to spread their problems to one another but not enough to guarantee an end to them — is what Europe’s leaders are racing to fix with a road map to economic integration that could come at the end of the month.
At the moment, those leaders are working to protect the rest of the euro zone from whatever happens in Greece on June 17. 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 even if they reject the bailout terms. 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 that Europe’s leaders remain worried that Greece’s anti-bailout agitators are right that their country is too important to write off.
In the United States, President Obama is also 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.
A balancing act
For now, Europe is still playing hardball with Greece, and the Spanish bailout of up to $125 billion may help leaders keep up their stiff resolve against Greece. Germany’s central bank said last month that Greece’s leaving the euro zone would be difficult but “manageable” for the rest of Europe.
But their 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 how much uncertainty Europe still faces. Even with Spain’s new rescue program, an anti-bailout victory in Greece could push Spain’s and Italy’s borrowing costs even higher, analysts say. The countries are large enough that if Italy needs aid and Spain needs more, Europe’s bailout funds might not be able to come up with the money.
“If Spain got into a catastrophic situation, you could forget French and German banks,” Luxembourg finance minister Luc Frieden told the RTL broadcaster Sunday.
So European leaders have been sending a conciliatory message to Spain and a very different one to Greece.
This Mediterranean nation’s 11 million people head to the polls next Sunday with a stark choice between leaders who accept the harsh terms of the bailouts that have kept their country afloat and those who reject them, potentially at the cost of Greece’s future on the euro. Fears that a Greek rejection would panic markets about the euro zone’s future pushed Spain to seek the aid ahead of Greece’s election.
Graphic
Unemployment and Europe’s fallen leaders
Graphic
An interactive look at the situation in Europe and how it affects you.
But the mere possibility of a victory for anti-bailout forces in Greece helped exacerbate Spain’s problems in the first place, boosting its government’s borrowing costs and causing a slow-motion bank run that weakened its financial system. That spiraling confidence problem — in which the 17 countries that share the euro currency are united enough to spread their problems to one another but not enough to guarantee an end to them — is what Europe’s leaders are racing to fix with a road map to economic integration that could come at the end of the month.
At the moment, those leaders are working to protect the rest of the euro zone from whatever happens in Greece on June 17. 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 even if they reject the bailout terms. 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 that Europe’s leaders remain worried that Greece’s anti-bailout agitators are right that their country is too important to write off.
In the United States, President Obama is also 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.
A balancing act
For now, Europe is still playing hardball with Greece, and the Spanish bailout of up to $125 billion may help leaders keep up their stiff resolve against Greece. Germany’s central bank said last month that Greece’s leaving the euro zone would be difficult but “manageable” for the rest of Europe.
But their 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 how much uncertainty Europe still faces. Even with Spain’s new rescue program, an anti-bailout victory in Greece could push Spain’s and Italy’s borrowing costs even higher, analysts say. The countries are large enough that if Italy needs aid and Spain needs more, Europe’s bailout funds might not be able to come up with the money.
“If Spain got into a catastrophic situation, you could forget French and German banks,” Luxembourg finance minister Luc Frieden told the RTL broadcaster Sunday.
So European leaders have been sending a conciliatory message to Spain and a very different one to Greece.