Massive debt has Spain cornered, with no cash haven to retreat to as Germany and other euro nations demand stringent austerity measures in exchange for a sovereign bailout for the eurozone’s fourth biggest economy.
Meanwhile, as violence rages on the capital’s streets, Prime Minister Mariano Rajoy edged closer to accepting conditions for such a bailout since the European Central Bank intervention would cut his country’s unsustainable borrowing costs, according to a Financial Post report.
Wednesday, the Bank of Spain declared the country has entered a “deep depression,” as protesters battled with police in Madrid for a second day.
Thirty-eight people were arrested Tuesday and 64 were injured after the violent protests broke out.
Wednesday, violence returned as police and protesters clashed in Athens and Madrid as thousands of Spaniards vented their collective outrage at new austerity measures.
Greek police responded with tear gas and blackjacks to hooded protesters who hurled Molotov cocktails at them as tens of thousands of protesters joined in.
An estimated 70,000 people marched on the Greek parliament chanting “EU, IMF Out!”
“We can’t take it anymore — we are bleeding. We can’t raise our children like this,” said Dina Kokou, a 54-year-old teacher and mother of four who lives on 1,000 euros ($1,250) a month.
While cuts demanded by lender nations to bail Spain’s economy out are the target of the latest austerity violence, there is no place else to borrow massive amounts of cash at low interest. Moody is expected to downgrade the nation’s credit rating Friday, possibly to junk status. Currently, Spain’s unemployment stands at 25 percent. The country is unlikely to hit its deficit reduction target of 6.3% of gross domestic product this year, and the central banks recently confirmed the economy continues to shrink in the third quarter.
Adding to economic and political pressures, the government’s austerity measures implemented to reduce regional spending has provoked a new drive for independence in Catalonia, the industrious northeastern region is responsible for about one-fifth of Spain’s economic output.
Whatever the outcome of the ongoing riotous protests, eurozone policymakers are insisting Rajoy do more to freeze pensions while continuing to cut popular social programs that Spaniards have come to rely on over the years.
Friday, an independent audit of Spain’s banks will estimate how much cash Madrid will need from a 100-billion euro (US$130-billion) aid package that Europe has already approved for the banks.
The audit coming out on the same day of the Moody credit rating does not bode well for any easing of austerity imposed by Spain’s eurozone bailout lenders.