Spain set for bank bail-out
The background
Eurozone ministers agreed terms for a €30 billion bail-out deal for Spain’s troubled banks.
The total package will reach a maximum of €100 billion, with the €30 billion first installment expected to be paid out in July 2012. Spain is also set to have its deficit-reduction deadline extended to 2013. After a meeting that lasted over nine hours and involved ministers from the 17 monetary union countries, the announcement came in the early hours of 10th July.
But the money may not start to move until the end of the month: the deal is set to go before a meeting of all 27 EU member states, and eurozone finance ministers must also ensure the package is approved by their own parliaments.
So is this the answer to the crisis? Many commentators remained cautious.
Read more about the background to Spain’s bank bail-out at The Periscope Post.
Where will the money come from?
“[Spain’s] ailing banks will be recapitalised via the eurozone’s temporary bail-out fund (European Financial Stability Facility). Once the permanent bail-out fund (European Stability Mechanism) is set up, funding will switch to this bail-out pot,” explained The Telegraph.
Markets largely unmoved by bail-out
In the wake of the announcement, Spain’s borrowing costs eased, reported Reuters, dropping below the ‘danger zone’ of 7 percent. However, “markets were disappointed the meeting did not offer more. The euro initially traded near a two-year trough against the dollar and hit a five-week low versus the yen, with sentiment edgy”. This uncertainty is due in part to a German court hearing due on 10th July to determine whether EU bail-out plans are compatible with national law.
Questions and disagreements remain
“Acute differences remain behind the scenes, it appears, with top eurozone figures seeking to paper over the cracks,” wrote Ian Traynor on a Guardian liveblog. “The key question is who is ultimately liable for the bailout funds once the eurozone takes out piles of equity in bad Spanish banks.” This is an important issue because Greece and Ireland, both of which received sovereign rather than bank bail-outs, are likely to demand the same treatment as Spain.
Germany: Spain must keep final liability
“Germany’s finance minister said that even once the euro zone’s bailout fund has been authorized to directly recapitalize struggling banks, the lenders’ host government should retain final liability for any losses,” reported The Wall Street Journal. But other Eurozone finance ministers insist the host governments must be protected from the fall-out of a banking crisis, in order to convince investors that “the risk of contagion between banks and countries has truly been contained”.
