Markets bounce on news of Spanish rescue
by Daniel Mason
11 June 2012
Global stock markets have reacted positively to the bail-out of Spanish banks – worth up to €100bn – that was agreed by eurozone finance ministers at the weekend.
By 11am CEST, Spain's IBEX index of leading shares had jumped by 3.7 per cent, while the yield on 10-year Spanish bonds – the putative cost of government borrowing – declined, indicating widespread relief that action was being taken to shore up the country's ailing banks. Italian bonds also rallied.
The United Kingdom's FTSE 100 index was up 1.38 per cent, the DAX in Germany surged 2.02 per cent, the FTSE MIB rose 1.74 per cent, and France CAC was up 1.93 per cent. Asian markets were also boosted, with the Nikkei in Japan up 2 per cent and the Hang Seng in Honk Kong rising 2.4 per cent.
Spain is the fourth eurozone country to seek a European Union bail-out since the onset of the crisis, but Prime Minister Mariano Rajoy portrayed the decision to request aid as a victory for the credibility of the euro. He said Spain had avoided the need for a full rescue on the scale of Greece, Ireland and Portugal – and the stringent conditions that applied to those countries' EU and International Monetary Fund programmes – because of the structural reforms and austerity measures his government had already put in place.
Emphasising that the loans would be purely for the recapitalisation of Spanish banks, rather than a bail-out of the sovereign, Rajoy said: "Because we had been doing our homework for five months, what did happen, was the opening of a line of credit for our financial system." However, the funds will be channelled through the government, adding to its public debt, which stood at 69 per cent of gross domestic product last year.
It is not yet clear exactly how much of the €100bn offered by the eurozone Spain will actually need, with independent assessments of banks' requirements due in the next few days. Explaining why the figure of €100bn was identified before the assessments were completed, a spokesman for EU economic commissioner Olli Rehn said today: "Cleary the Eurogroup wanted to cover all eventualites, even under the most adverse scenarios." An earlier report by the IMF suggested Spain would need at least €40bn to recapitalise its banks.
The money will come either from the EU's temporary bail-out fund, the European Financial Stability Facility, or from the new permanent European Stability Mechanism that is due to come into force in July. Finland has asked for extra guarantees if the EFSF is used. The rescue will be overseen by the IMF, the Eurogroup and the European Central Bank, Spain's EU commissioner Joaquín Almunia told Cadena Ser radio today. "When people lend money, they never do it for free. They want to know what is done with the money," he said.
By 11am CEST, Spain's IBEX index of leading shares had jumped by 3.7 per cent, while the yield on 10-year Spanish bonds – the putative cost of government borrowing – declined, indicating widespread relief that action was being taken to shore up the country's ailing banks. Italian bonds also rallied.
The United Kingdom's FTSE 100 index was up 1.38 per cent, the DAX in Germany surged 2.02 per cent, the FTSE MIB rose 1.74 per cent, and France CAC was up 1.93 per cent. Asian markets were also boosted, with the Nikkei in Japan up 2 per cent and the Hang Seng in Honk Kong rising 2.4 per cent.
Spain is the fourth eurozone country to seek a European Union bail-out since the onset of the crisis, but Prime Minister Mariano Rajoy portrayed the decision to request aid as a victory for the credibility of the euro. He said Spain had avoided the need for a full rescue on the scale of Greece, Ireland and Portugal – and the stringent conditions that applied to those countries' EU and International Monetary Fund programmes – because of the structural reforms and austerity measures his government had already put in place.
Emphasising that the loans would be purely for the recapitalisation of Spanish banks, rather than a bail-out of the sovereign, Rajoy said: "Because we had been doing our homework for five months, what did happen, was the opening of a line of credit for our financial system." However, the funds will be channelled through the government, adding to its public debt, which stood at 69 per cent of gross domestic product last year.
It is not yet clear exactly how much of the €100bn offered by the eurozone Spain will actually need, with independent assessments of banks' requirements due in the next few days. Explaining why the figure of €100bn was identified before the assessments were completed, a spokesman for EU economic commissioner Olli Rehn said today: "Cleary the Eurogroup wanted to cover all eventualites, even under the most adverse scenarios." An earlier report by the IMF suggested Spain would need at least €40bn to recapitalise its banks.
The money will come either from the EU's temporary bail-out fund, the European Financial Stability Facility, or from the new permanent European Stability Mechanism that is due to come into force in July. Finland has asked for extra guarantees if the EFSF is used. The rescue will be overseen by the IMF, the Eurogroup and the European Central Bank, Spain's EU commissioner Joaquín Almunia told Cadena Ser radio today. "When people lend money, they never do it for free. They want to know what is done with the money," he said.
RELATED CONTENT
Pessimism and populism on the rise in a Europe without hope
The sense of hopelessness is, perhaps, the single most serious threat to the long-term viability of the European project – writes Joe Litobarski
The sense of hopelessness is, perhaps, the single most serious threat to the long-term viability of the European project – writes Joe Litobarski
COMMENTS
