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Spain's banks are struggling and the country's leaders are sending mixed signals about whether they can afford to rescue them, or whether they'll need to ask for outside help.
What [Spain] wants is probably some type of support for those banks, without having to go through the whole bailout, such as the ones we have seen in the other three countries.Economist Gonzalo Garland of Madrid's IE Business School
But one thing is clear: Spanish leaders are trying to avoid calling any potential rescue plan a bailout.
Spain's Economy Minister Luis de Guindos dismisses talk of a bailout for Spanish banks.
"We'll make whatever decisions we need in the future," De Guindos told reporters in Brussels. And that won't be for weeks, after audits of Spanish banks, he said.
But just a day earlier, Spain's budget minister, Cristobal Montoro, said it's become too expensive for Spain to borrow money and so it needs European aid immediately.
"Spain doesn't have an open door to the markets," Montoro told a local radio station. His comments had analysts predicting a bailout within hours.
Either they got their signals crossed, or both ministers are right: Spain may be out of money, but it might not need a bailout.
The key word here is "bailout" — a word Spanish officials don't want to use.
They're angling instead for a relatively small infusion of European aid directly into Spanish banks, rather than the full-fledged bailouts that Greece, Portugal and Ireland received.
"What they want is probably some type of support for those banks, without having to go through the whole bailout, such as the ones we have seen in the other three countries," says economist Gonzalo Garland of Madrid's IE Business School.
He says aid needed for Spanish banks might be in the $50 billion range — less than half what it cost to prop up Portugal, the smallest economy of the three that have received bailouts so far.
A 'Bailout Lite'?
So it could be called a "bailout lite" — a relatively small amount of cash going to banks instead of government coffers. And Spain is hoping to avoid the kind of strings attached to the other bailouts, Garland says.
"Probably there would be some type of imposition on some policies of Spain, but not the full-blown rescue or bailout that we have seen in the others," he says.
However, EU rules would still have to be changed to allow European rescue funds or the central bank to recapitalize Spanish banks directly. And that could happen at an EU summit later this month.
Garland says that after Francois Hollande's election as president of France, there seems to be a growing consensus among European leaders that it's in their best interest to try to work with member states to help them avoid reaching the point of a bailout.
"International pressure is building up. Germany is a little bit alone. We're seeing even Germany changing some positions, and maybe talking about building a system where there will be direct support of banks that are failing in Europe," he says.
The hope is that stronger European institutions will emerge from the crisis. For Spain, the question is whether it has time to wait for those changes. Thursday will be a key test as Spain auctions off 10-year bonds and waits to see if investors still want them.
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