Euro Enjoys Relief Rally Following Eurogroup Announcement Of ?100bn Bailout For Spanish Banks

Published: Monday, 11 June 2012 09:00 BST - Written by Frank Davies

STORY LINK Euro Enjoys Relief Rally Following Eurogroup Announcement Of ?100bn Bailout For Spanish Banks

Question – when is a bailout not a bailout? Answer – when it’s arranged by debt-addled Iberian giant Spain’s policy-makers. At least, that’s the conclusion which many political and financial commentators have reached following events in Europe over the past 48hrs.

The eurozone group of finance ministers used the weekend closedown of the world’s currency markets to issue a statement confirming last Friday’s rumours – Spain’s beleaguered banking sector will be granted emergency funding of up to €100bn in order to shore up sizeable holes in its finances. Concerns for Spain’s retail banks escalated at the end of last month following the announcement that Bankia, one of the country’s leading financial services companies. These concerns reached near panic levels when Spain’s centre-right Prime Minister Mariano Rajoy stated that global credit markets were ‘effectively closed’ to his country, following a sharp rise in the yields which Spain was paying on its government bonds.

The tens of billions of euros worth of emergency financing will come from the European Stability Mechanism and its precursor the European Financial Stability Facility – both are funded by the eurozone’s nations. Spain’s Finance Minister Luis de Guindos was quick to point out that this was ‘not a bailout’, pointing out that the additional finance will be made available to a body ratified by the Spanish government, rather than directly to Spain’s treasury. In truth, Guindos has little option but to attempt to re-brand the eurogroup’s action as something other than a bailout, following his Prime Minister’s assertion at the end of last month that there would be ‘no bailout’ for Spain’s banks. However, Guindos’s statement fooled no-one.

The initial reaction from global policy-makers has been predictably positive; Christine Lagarde, the Head of the IMF and US Treasury Secretary Tim Geithner were two of the quickest out of the blocks, both hailing the ‘recue package’ as a panacea for Europe’s fiscal problems. The global investors’ instant verdict was also positive, as the euro strengthened and the safe-haven US Dollar lost ground as the currency markets re-opened last night. However, with a host of analysts queueing up ot question whether the announcement may ‘too little too late’ for the eurozone’s creaking banking sector, it appears far too early to state that the euro is safe, just yet at least.

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