Spain banks bailout to lift markets

By Press Association , Jun 11, 2012
Filed under: Investing

Spain's plea for a banking bailout of up to £81 billion is set to lift markets on Monday despite its leader's grim warnings of more pain ahead.

Spanish prime minister Mariano Rajoy admitted that its banks needed a cash injection and warned of another "bad" year to come, with the country expected to remain in recession and unemployment set to worsen.

Although the situation in the eurozone's fourth biggest economy remains bleak, there are hopes that the eventual injection of up to 100 billion euro (£81 billion) for its creaking banks will help to avoid the meltdown of the eurozone.

Spain's borrowing costs, which have risen to unsustainable levels in recent weeks, are expected to fall back on Monday, while world markets are set to regain some of their recent losses.

Markets have suffered hefty falls in recent weeks amid fears Greece will reject austerity and crash out of the euro and that Spain would fall into difficulty and prove too big to bail out. They have already made up some of their lost ground last week amid speculation of a deal for Spain.

A final figure on the size of the bailout will only be available later this month following the completion of two audits of the financial system.

The cash is expected to come from the eurozone rescue fund, with the International Monetary Fund overseeing the payments but not putting up any money.

The terms of the deal Spain is set to receive is likely to reassure markets because it has none of the strings attached to previous bailouts of Greece, Portugal or Ireland, when tough austerity measures were demanded.

Spain's financial problems are not due to Greek-style government overspending. Instead, its banks got caught up in the collapse of a real estate bubble in 2008 that then got worse over the next four years.

There are fears the problem will get worse as more jobless people are not able to pay their mortgages. It has already nationalised its fourth biggest lender Bankia, and four other banks serving the domestic market are considered prime candidates for bailouts.

The Motley Fool is an AOL Partner

Tags: bailout, euro, europe, Eurozone, Investing, spain

Add a Comment

Sign in »

3 Comments

Filter by:

archieandteach

Short term fix for a doomed currency. How much more are tax payers going to have to shell out for this ongoing farce.

June 11 2012 at 4:57 AM Report abuse Permalink rate up rate down Reply

ganeaeurope

Mmmm. I suspect that this is really only 'more of the same' ('Hope' obscuring 'Reality'). The Spanish Banks have been refusing to accept the true position for years. They have accepted the 'rolling up' of mortgage arrears that, in cases known to me, are so extreme that it merely illustrates the extent of the real problem. In some cases mortgages have not been paid for well over 3 years. The owners have offered the property keys back to the Banks which have refused to accept repossession. So those properties remain 'on the books' - at what price I wonder! This 'bail out' is just another step in the inevitable proposed end game of the 4th Reich arriving.....................

June 11 2012 at 4:30 AM Report abuse Permalink rate up rate down Reply

1 reply to ganeaeurope's comment

ronnietmaxwell

That is a distinctly worrying picture that you are portraying and I sadly think sadly you may well be right!
Just as British banks desperately tried to deny/hide their full indebtedness (until the markets forced them to come clean), so too do I believe that many other banks around Europe are praying that the continent's property prices remain high enough to provide Security against loans(both private and corporate). We have already seen examples in Ireland of the problems out there (from the collapse of their property 'bubble') and I suspect we will see more to come in Spain, Portugal etc.
Sadly as we have seen, democracies in Europe and the structure of the EU seem incapable of dealing with these matters. Already we have seen the Greek populace vote out those Greek politicians who signed up to their necessary EU rescue package. The most popular politcal parties in Greece are those demanding that Europe should "cancel out the debts" built up in the Greek taxpayers names but that SOLVES NOTHING if those who lent the money to Greece are not paid back what they are owed. The financial markets will take a massive pounding if voters ignore their indebtedness.
The trouble is that there are not sufficient voter numbers are willing to vote in politicians who argue that austerity is what is required to pay off unsustainable debt levels. Equally, we also see the voters in Germany (who suffered considerable austerity of their own accommodating expensive German reunification the 1990's) say "NO" to bailing out the profligate Mediterranean block. We can all understand their reticence in doing so.
However, unless these slow unwieldy democracies can see their way through the unstable Euro currency mess, it may well stir up so much dissent in the citizens of these various countries that 'nationalism' will come to the fore (just as it did in Germany & Italy in the 1920's/30s). Hitler & Mussolini came to power because voters were fed up with the mess that previous democratic regimes had left them in.

It wasn't that long ago that both Greece & Spain functioned with Dictatorship forms of Government (General Franco in Spain & the military Junta in Greece) and unless we can see strong leadership emerging from the head of the EU (and I don't see that happening with the diverging views of the German & newly elected French leaders), I think there is a risk that fascism (of a sort) could well re-emerge again in some of these countries.
Whilst at times I was in despair with some aspects of Tony Blair's politics (I am a natural conservative voter), I do wish that he had been appointed to the top job in Europe and not that useless Belgian puppet that is supposed to be "our President of Europe". He is so useless I cannot even remember his name, nor that of the British" head of EU foreign affairs". What a mess the EU is in!
Strong brinkmanship leadership is now required to keep a lid on this Euro bubble!

June 12 2012 at 8:48 AM Report abuse Permalink rate up rate down Reply