Spain will need bailout this year: Citi

MADRID: Emergency help will be needed by Spain from international lenders this year to shore up its banks and public finances say’s a leading economist at major financial group Citi on Wednesday. Citi’s chief economist Willem Buiter said, “Spain looks likely to enter some form of a troika program this year” as a condition for the European Central Bank to keep supporting it by lending to it on favourable terms.

The “troika” refers to the European Union, European Central Bank and International Monetary Fund ( IMF), which jointly provided funds to Greece, Ireland and Portugal to save them from financial collapse.

Spain this month agreed to cut the shortfall to 5.3 percent of gross domestic product this year — still well above the previous target of 4.4 per cent beacuse of pressure from European authorities and financial markets to reduce its public deficit.

“The compromise 5.3 per cent of GDP deficit target for 2012 and the unchanged 3.0 per cent target for 2013 seem unlikely to be realised in our analysis,” Buiter wrote in a report. Prime Minister Mariano Rajoywill be presenting its 2012 budget on Friday.

According to the reports a forecast of 2.7 per cent contraction was expected this year in the Spanish economy, which entered recession this quarter according to Spain’s central bank. The government forecasts officially a 1.7 contraction this year. “Sovereign debt restructuring is avoidable,” Citi wrote, but warned that to do so “would require more radical fiscal and structural measures.”The new government has been active in structural reform but has missed an opportunity to address fiscal austerity in its first 100 days in office.”