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By on June 19, 2012

Spain, one of Europe’s leading economies is facing a pain and strain as its banks are engulfed in structural crisis and after a downgrading by top rated Global International Financial Agencies it is facing a serious and precarious political economic situation that is dire and as dangerous as a time-bomb.

It is on this basis that Finance Minister Luis Guindos announced that Spain will be requesting for about a 100 billion Euros fund as bailout for their banks, which will also serve as a conduit for resuscitating the economy which is presently ‘fragile’ at the moment.

Already the unemployment rate in the country is pegged between 20% to 25% which has also witnessed over 27,000 young professionals leaving the shores of the land to explore other possibilities in countries like Brazil, UAE, and China.

Why would Spain be at this level? Earlier in the year Prime Minister Marian Rajoy announced an ‘Austerity Budget’ plan that was to ensure that the economy will be stabilized in the midst of the challenges of the ‘Eurozone’.

Unfortunately the task of ensuring proper structuring of the banking system in the country, and guaranteeing that the banks pass the stress test required to confirm their viability and credibility for investor confidence were not taken seriously.

Already downgraded in its rating by Moody’s financial rating group, the political economic crisis in Spain is akin to the 2007 global economic recession that stemmed from the United States banking fiasco.

Bankia one of the leading banks in the country is on the verge of insolvency and is one of the reasons for the Spanish government’s request for bailout as it demands about 24 billion Euros to stabilize and regain shape.

The bank is the fourth biggest lender in the country and its predicament means uncertainty for the Spanish market at the domestic level and the Eurozone at the regional level.

Prior to this period the country has witnessed several strikes and protests from the Spanish citizens who were fed up with the initial austerity drive of the Marian Rajoy administration which attracted about 27 billion Euros in budget cuts.

In 1992 when it hosted the Olympics in Barcelona, the Jose Aznar administration tried vigorously to contain the banking crisis which caused a recession by devising a sustainable growth plan alongside an ‘austerity’ plan.

The difference between that period and now is that the centre right government (Peoples Party) of Marian Rajoy seem to be confused on the structural state of the economy and the way forward compared to the socialist party era of Jose Aznar who in the midst of the crisis had a structured plan on how to ameliorate the situation.

It took the European Central Bank governor Mario Draghi to insist and bring the Prime Minister Rajoy administration to focus that his government must structure how it plans to finance the ‘bailout’ of the Bankia.

After several consultations and periods of indecision on whether it should blow the alarm for help and rescue the Spanish bank finally decided to face the reality and asked for the bailout.

Economic analysts and scholars have been pondering and wondering if the Spanish government really understand the state of the economy especially the banks and how to stabilize the economic situation muddled by debt mismanagement.

In 2009 former American secretary of State’s Mr James Baker in a post-recession  interview on CNN on the state of the global economy, emphasized the need for the Obama administration then to move beyond bailout  and tackle the underlying structure of the banking sector.

Bailouts, rescue plans, intervention plans, injection of more funds and recapitalization of banks are good but if economic growth and stability is to be achieved, the structure of the banking and its core must be reviewed with necessary stress tests and routine operational investigations carried out.

This issue can no longer be downplayed across the globe and the dimensions of banking crisis in United States (2008), United Kingdom(2012), and Spain at the moment have all prompted the need for government to intervene and salvage the crisis.

Spain’s pain at the moment is a lesson for governments across the globe to begin to pay more attention to the banks and their operations, one of the catalysts of ‘debt crisis’ is a faulty banking   structure.

The recent decision by the European bankers’ council that in the future any crisis or insolvency situation plaguing a bank will be resolved by the bank and the shareholders and not the public funds that is called ‘bailout’ is a laudable one.

Europe’s decision to assist Spain with the bailout is timely and commendable, but this willingness to help must come with an undertaking that the Spanish government will be more responsible to put necessary checks on the banking structure and operations, and also allocate the funds appropriately.