ATHENS — Spain was forced to seek a bailout this weekend, becoming by far the largest country to need help during Europe’s 2 1
2-year-long economic crisis. But it was tiny Greece that pushed Spain over the brink.
Greek voters head to the polls Sunday with a stark choice between leaders who accept the harsh terms of the bailouts that have kept their country afloat and those who reject them, potentially at the cost of Greece’s future in the euro zone. Fears that a Greek rejection would send markets into panic about the currency union’s future pushed Spain to seek the aid ahead of Greece’s election.
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But the mere possibility of a victory for anti-bailout forces in Greece helped exacerbate Spain’s problems in the first place, boosting its government’s borrowing costs and causing a slow-motion bank run that weakened its financial system. That spiraling confidence problem — in which the 17 countries that share the euro currency are united enough to spread their problems to one another but not enough to guarantee an end to them — is what Europe’s leaders are racing to fix with a road map to further economic integration that could come at the end of the month.
At the moment, those leaders are working to protect the rest of the euro zone from whatever happens when Greece votes Sunday. Greece’s anti-bailout politicians have wagered that the unpredictable consequences of the currency union’s kicking out a member will force Europe to support them regardless. The urgency with which Spain was pushed to take a bailout — the International Monetary Fund sped up by three days an estimate of how much money the country’s banks might need — is a sign of continued worry among Europe’s leaders that Greece’s anti-bailout agitators are right: Their country is too important to write off.
In the United States, President Obama is worried that bad economic news from Europe could dampen America’s struggling recovery, and with it his reelection chances. He has, in recent days, expressed unusually direct concerns about Europe’s management of the crisis.
A balancing act
For now, Europe is still playing hardball with Greece, and the bailout of up to $125 billion for Spain may help leaders keep up their stiff resolve against Greece. Germany’s central bank said last month that Greece’s exit from the euro zone would be difficult but “manageable” for the rest of Europe.
But the balancing act — talking tough with Greece, while taking big steps elsewhere to guard against turmoil spreading if Greece votes for the bailout critics — is a reminder of the uncertainty Europe still faces. Even with the rescue program for Spain, an anti-bailout victory in Greece could push the borrowing costs of Spain and Italy even higher, analysts say. The countries are large enough that if Italy needs aid and Spain needs more help, Europe’s bailout funds might not be able to come up with the money.
“If Spain got into a catastrophic situation, you could forget French and German banks,” Luxembourg Finance Minister Luc Frieden told the broadcaster RTL on Sunday.