Spain’s euro bailout

Spain is to receive a 100 billion euro bailout to save its failed banks. Not only that but it will get a better deal than Ireland got when it was bailed out.

Should the Irish government have negotiated a clause that no-one would get a better deal than them in any later bailouts? If they could have done this then surely it would have been better for them.

It may seem counter-intuitive but almost certainly not.

If Ireland had a deal that allowed them to match any future deal then that would actually have made it harder for a Spanish bailout to be agreed. Instead of looking at 100 billion euros to help Spain, the cost of a bailout would have been the 100 billion for Spain, plus, say, another 30 billion euros to improve the Ireland deal.

If the Irish deal had a clause in it that matched any later deal then the Spanish deal may not have happened. The Spanish would have been worse off and the Irish would have been no better off. Without a matching clause the Spanish deal was possible (even if it doesn’t work in the end)

This applies more generally in business. If you are a customer who has a deal with your supplier that means that you will always get the best rate then that is superficially good for you. But, in fact, it probably just strengthens your supplier’s negotiating position with other customers. They have more of a reason to hold out because if they cave in to one of your competitors it will cost them more because they will have to improve your deal too.

You will have the best deal that anyone gets but it might have been better if the supplier was free to negotiate with everyone separately

 

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