Dominique Faget /AFP/Getty Images
The Banco de Espana (Bank of Spain) in Madrid.
The Banco de Espana (Bank of Spain) in Madrid. Dominique Faget /AFP/Getty Images
The latest European country to ask for financial support will get substantial assistance. Spain's ailing banks will receive billions of dollars from other European countries, as Spain wobbles on the edge of a financial cliff.
This isn't quite a bailout of the Spanish government. It's a recapitalization of the Spanish banking sector, which will get about $123 billion dollars in new aid, from the 17 countries that use the euro, according to the Associated Press.
It's not clear when the first disbursement will come - that's because banking officials have to finish calculating their balance sheets. As the Irish Times reports, the Spanish financial sector is "riddled with bad property loans". The last of the money is supposed to arrive by the end of 2013.
Even with the help, Spain may be forced to ask for aid, according to Reuters. The Valencia region, which is deep in debt, requested financial help from the Spanish government today; the news spooked investors, and increased Spain's borrowing costs. The Spanish stock market dropped by as much as five percent. Italy's stock market also fell, Wall Street opened lower today and the euro reached a new two-year low against the dollar.
Spanish officials approved new austerity measures on Thursday after the country's budget minister said Spain is short on cash, according to the Wall Street Journal. The move to increase taxes and slash government spending didn't sit well with many Spaniards: thousands took to the streets in a protest march in Madrid last night. Spanish unemployment is estimated at 25%.
Should Spain ask for European help, it would follow Ireland, Greece and Italy in requesting a bailout. But as the Associated Press warns, the Spanish economy is bigger than those three countries combined, and the cost could be too much for the other Eurozone countries to shoulder.