Aid for spain: first relief, then skepticism

aid for spain: first relief, then skepticism

Despite billions in aid for spain’s banks, EU commission says there is still cause for concern about country’s stability. In addition, cyprus could also need the european bailout fund. The island state needs about 1.8 billion euros for the country’s second-largest bank, the cyprus popular bank. The commission has identified "very serious imbalances" in spain and cyprus that require urgent action, eu preservation commissioner olli rehn told the eu parliament’s economic committee in strabburg on monday.

The interest rates that madrid must offer investors for fresh money rose sharply again on monday after an initial recovery. Handler attributed the uncertainty to many unanswered questions in spain, but also to the upcoming election in greece on sunday. The consequences of a possible exit of athens from the euro zone are considered incalculable.

Relief was initially felt on stock markets around the globe following the agreement on aid for spain’s ailing banking sector: the german leading index dax temporarily gained up to two and a half percent at the start of the new trading week, but by the evening had given back almost all of its gains and closed up 0.17 percent at 6141.05 points. The euro exchange rate also benefited only temporarily.

The european stock markets also started the day on an upward trend, but like the dax, the european indices also fell again by the end of the day. In tokyo, the nikkei 225 index closed almost 2 percent higher. On the bond market, the easing lasted only for a short time: yields on spanish and italian government bonds – indicators of investors’ distrust of the countries – rose sharply again during the course of the day. In this environment, german government bonds, which are considered safe, were allowed to remain in demand.

The euro gave up its early gains as the day progressed, with the european single currency trading at 1.2498 U.S. Dollars in the evening. In early asian trading, the euro had risen as high as 1.2667 dollars.

To get spain’s banking crisis under control and calm the markets, the finance ministers of the region had pledged up to 100 billion euros for the ailing institutions over the weekend. EU commission expects spain’s official request "in a short while," EU safeguard commissioner rehn’s spokesman said in brussel, without giving a specific date. The country had previously rejected international aid for weeks for fear of an austerity diktat.

Further problems in the euro zone: greece’s remaining in the common currency area is uncertain, and drastic austerity programs in euro debt countries are having an increasingly strong impact on the economy. The euro zone is threatened by a recession this year, with the italian economy contracting for the third quarter in succession. In the first quarter of 2012, gross domestic product (GDP) fell by 0.8 percent compared with the previous quarter, according to an initial estimate by the italian statistics agency istat. Bank economists were therefore concerned about the situation in italy. "It is quite possible that italy will also ask the community of states for help in the end," said the chief economist of commerzbank, jorg kramer, to "handelsblatt online" on monday.

Madrid will also drive up its debt through the emergency loans. The impact on the spanish budget deficit cannot yet be quantified, said rehn’s spokesman. The consequences for the state budget deficit have now been estimated by the european statistical office eurostat.

For the promised emergency loans, spain must accept inspection visits by experts in its country, according to the EU. In a first step, the EU commission, with the support of the european central bank (ECB), the european banking authority (EBA) and the international monetary fund (IMF), will determine the financial needs of spanish banks, said the spokesman for the EU’s safeguard commissioner. From this, the amount and the conditions for the loans that madrid must respect were derived.

The IMF will then monitor the implementation of the conditions – even if it does not participate in the financing of the aid for spain. The fund will report regularly on the progress of the reforms in the spanish banking system after visits to the site. Spain agreed to this at the eurogroup conference call on saturday. Earlier, spain’s economy minister luis de guindos had said that the IMF was only playing "an advisory role".

The federal government buried the spanish government’s decision over the weekend. "This is a good sign for the markets and for europe’s partners as a whole," said government spokesman steffen seibert.

Like this post? Please share to your friends:
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: