And yet despite the clear signs of failure in the existing bailout countries, the EU looks set to pursue an unchanged plan in Spain. But the crucial difference between Spain and the bailout countries is size. If things go wrong in Greece, Portugal and Ireland, a second bailout is affordable. But there can only be one roll of the dice for a country as large as Spain.Read it at EconoMonitor
Get Ready for the Spanish Bailout
By Nouriel Roubini
Paul Martin, the Former Prime Minister of Canada, spoke at the recent INET conference in Berlin about the importance of governments getting policy right the first time. More specifically, he was discussing policies related to stimulus or bailouts. From his perspective the first attempt must provide enough firepower to resolve the situation, otherwise support for future attempts will dwindle along with the potential to vastly increase resources.
In the case of Europe, Greece needed multiple bailouts before actually defaulting and yet remains likely to need further bailouts or risk another default. Portugal may very well need a second bailout later this year. Given these missteps, support for a substantial bailout of Spain is already going to be a difficult sell. It’s hard to envision the EU/ECB/IMF garnering enough firepower in the first go around to recapitalize the Spanish banking system and stabilize public debt concerns. The downside risks in Europe remain very present.
Paul Martin: Keynote Address: Reflections on the Politics of Deficit Reduction: