Politicians, traders and consumers will have their eyes on the markets today, hoping for a sign that the €100bn (£80bn) financial lifeline for Spain's banks would – as the Spanish Prime Minister optimistically predicted – save the credibility of the euro.
Mariano Rajoy said that the money announced on Saturday for Spanish banks hit by toxic property loans meant that "the credibility of the euro won... the European Union won." His words followed a chorus of approval from the US, Britain and the IMF, which said that the move would shore up confidence in the eurozone.
But analysts are already asking whether €100bn is enough to solve Spain's problems, while many investors are focusing on where the contagion may accelerate to next, with Italy high on the list. Against this backdrop, any post-bailout share-price rise is likely to be even shorter-lived than usual.
Mr Rajoy also sounded a note of caution, warning that there were dark days ahead. "Growth is going to be negative by 1.7 per cent and unemployment will increase," he said. In Madrid, there were promises of protests next weekend. But most Spaniards appear willing to wait and see whether it brings more austerity or the first signs of recovery. "It could be the end of the world, it could be the beginning of a new one," one Madrid newspaper vendor told The Independent.
Less than 24 hours after securing €100bn of European money, the Spanish Prime Minister painted a grim picture of his country's economic future, warning that despite the financial lifeline, more jobs would be lost and Spain would be unable to pull itself out of a double-dip recession.
"This year is going to be a bad one, growth is going to be negative by 1.7 per cent and unemployment will increase," Mariano Rajoy said yesterday, laying the blame for Spain's current economic difficulties squarely on the previous government. "Last year, the country's public administration spent more than €90bn than it received," he said. "You can't go on like that."
Mr Rajoy was markedly more upbeat about the bailout itself, announced by the Economy Minister, Luis de Guindos, on Saturday evening after the Eurogroup agreed to lend Spain up to €100bn for banks hit by toxic property loans. Around 30 per cent of Spain's banks are believed to be affected. "Yesterday, the credibility of the euro won," he said. "Yesterday the future won. Yesterday, the European Union won."
The bailout, Mr Rajoy said, would restore credibility to the eurozone: "If we hadn't done it, then perhaps the entire country would have needed [international] intervention."
His comments followed a wave of global approval, with the IMF chief, Christine Lagarde, the US Treasury Secretary, Timothy Geithner, and William Hague all hailing Spain's decision to request the loan. Less than two weeks ago, Mr Rajoy had insisted that Spain did not need a bailout.
Among Spain's citizens, the mood seemed to be largely one of resignation. For most of yesterday, Madrid's Puerta del Sol square, the scene of many anti-austerity protests, was empty of demonstrators although in the evening,about 50 sat cross-legged in the square. "Payments for the bailout will contribute to Spain's deficit," said one middle-aged protestor.
"We could see it [the bailout] coming, even if two days ago one of the ministers was saying it would never happen," said Aron, who sells old photographic plates outside the Bank of Spain building in the square. Asked why he thought the bailout had not provoked protests, he retorted: "Because it makes no difference. Ordinary people end up paying for the banks' mistakes whether they're bailed out or not."
A survey by Metroscopia for the newspaper El País showed that 70 per cent of Spaniards interviewed last week said they thought a bailout would be a bad thing – but a further 65 per cent said they expected it. "I think the point is that we haven't seen the worst of the recession yet, people can see the wolf is at the door, and don't know what will happen next, so they're waiting," said Noelia Rioboo, a Madrid hotel worker.
How long Spain's economic woes will now drag on, and whether the bailout could finally kick-start the process of a recovery, though is anyone's guess. "It could be the end of the world, it could be the beginning of a new one," one Madrid newspaper vendor told The Independent.
Today, though, one crucial ingredient in that possible path back to economic health will quickly become clear – whether, post bailout, the markets will finally cease to hammer Spain's borrowing costs.
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