BERLIN — The bargaining has begun over a deal to rescue Spain’s ailing banks, confronting Europe with urgent choices about whether to try to enforce onerous bailout terms on Madrid as the crisis spreads to the region’s largest economies.
The question has seemingly become one of when and not if Spain’s banks will receive assistance from European countries, with investors on Wednesday predicting an imminent rescue and pushing up stocks and bonds on both sides of the Atlantic.
Spain, the eurozone’s fourth-largest economy, is too big too fail and possibly too big to steamroll, which is changing the balance of power in the negotiations over a bailout.
Political leaders in Madrid are insisting that emergency aid to their banks avoid the stigma in capital markets that has hobbled countries like Greece, Portugal and Ireland after accepting tough rescue terms. They are also fighting to slow the pace of austerity and economic change that have pushed those smaller countries into deeper recessions.
Spain has the added advantage of seeking help in a changed political environment in which calls for growth have begun to outweigh German insistence on austerity. Unlike Greece, Spain’s government did not run large budget deficits before the crisis, giving it leverage to argue that European aid to its banks should not come weighed down with a politically delicate loss of decision-making power over its own economic and fiscal policies.
Madrid’s trump card in this latest game of eurozone poker is that the consequences of a Spanish default and exit from the eurozone would likely be so catastrophic that policymakers in Berlin will be willing to bend their bailout rules for Spain, and are on the verge of doing just that.
German officials have said they are prepared to weather a Greek exit from the euro if necessary, but no such claims are made about Spain.
As such, Spanish leaders, who feel Madrid has already made many painful changes and spending cuts, are holding out for a deal that requires only a tightening of oversight on its financial sector and no strings attached to the country’s budget powers.
Spain also appears to be forcing a reckoning about the expensive steps political leaders in Europe need to take if they want to hold the eurozone together.