Madrid has secured €100 billion to rescue its banks in an attempt to pre-empt the threat of a bank run if the debt crisis in another troubled country, Greece, flares again. But angry Spaniards accused Prime Minister Mariano Rajoy of ill-timed triumphalism and an inappropriate trip to Poland to watch Spain compete in the Euro 2012.
After weeks of insisting that Spain needed no assistance to recapitalise lenders crippled by bad debts from a burst real estate bubble, Rajoy was pushed into requesting the eurozone an aid package for fear of a worse disaster to come, European officials involved in the negotiations said.
The 17-nation currency area agreed on Saturday to lend Madrid up to €100 billion for its bank rescue fund, more than an initial audit suggests it is likely to need, in an attempt to reassure investors and erect a new firewall in the crisis.
Rajoy said his reforms had spared Spain a full rescue for its public debt. But confused and anxious Spaniards heaped scorn on the prime minister for portraying the European rescue as a triumph.
In blogs and forums, many Spaniards accused Rajoy of cowardice and expressed astonishment that he had gone off to watch Spain play in the European football championships against Italy. The match from the group C, nicknamed “Group of Debt”, ended yesterday (10 June) in a 1-1 draw. The group also comprises Croatia and Ireland. Croatia leads the group, having beaten Ireland 3-1.
Rajoy avoided calling the deal agreed by eurozone finance ministers a "rescue" - even though every leading Spanish newspaper called it just that - apparently because this would imply the kind of humiliating conditions and surveillance by European officials that Ireland, Greece and Portugal have endured under their bailouts.
But the eurozone's latest line in the sand, after the bailouts for Greece, Ireland and Portugal since 2010, could be swept away as early as 17 June by angry Greek voters, rekindling market turmoil that would hit Spain and Italy first.
Unicredit chief economist Erik Nielsen said once the banks had been recapitalised, "they have basically addressed the three key weaknesses: banks, regions, and structural weaknesses".
"The burden of recapitalising insolvent banks or loss-making acquisitions of solvent banks will fall on Spanish citizens," said Karl Whelan, economist at University College, Dublin. "For this reason, this weekend's announcement may well end up shutting Spain out of the sovereign bond market."
Spain - the eurozone's fourth largest economy - is beset by recession and mass unemployment and still has a weight of national and regional debt to roll over later in the year, although it has got through 58% of its borrowing for 2012.
The government still needs to refinance €82.5 billion of debt maturing by the end of the year, with a big hump at the end of October, and Spain's overspending regions have a further €15.7 billion of debt maturing in the second half of 2012.
"We're very close to junk bonds and we'll end up in the junk," José Carlos Diez, chief economist at Intermoney in Madrid, said on Spanish television.
Germany and France, Europe's two leading powers, as well as the European Central Bank, the European Commission and the International Monetary Fund, leaned heavily on Madrid to request aid before the Greek general election.
A senior German official said Berlin had warned the Spanish government if it did not seek help for the banks now, it risked having to apply for a full-fledged country bailout later.
"Spain is better off in a safe shelter," the official said, adding that the timing before the Greek vote was vital.
Chancellor Angela Merkel publicly praised Rajoy's fiscal and labour market reforms and said Spain did not need to implement any deeper austerity measures in return for help.
French President François Hollande, keen to avoid eurozone panic as he seeks a parliamentary majority, also applied pressure for a swift bailout.
US President Barack Obama telephoned Merkel, Hollande and other senior European leaders last week to press for urgent action to stem the eurozone crisis, which poses a threat to the US recovery and hence to his re-election. Japan, Britain, Canada and the IMF all weighed in.
US Treasury Secretary Timothy Geithner called Saturday's decisions on Spain "concrete steps on the path to financial union, which is vital to the resilience of the euro area".
"We welcome today's communication by Spain of its intention to request the support of the euro area for the restructuring of its financial sector, and the Eurogroup's positive response to this. The Commission is ready to proceed swiftly with the necessary assessment on group, in close liaison with the ECB, EBA and IMF, and to propose appropriate conditionality for the financial sector. With the thorough restructuring of the banking sector, together with the on-going determined implementation of structural reforms and fiscal consolidation, we are certain that Spain can gradually regain the confidence of investors and market participants and create the conditions for return to sustainable growth and job creation," President of the European Commission José Manuel Barroso and Vice-President Oli Rehn said in a joint statement.