Spain bailout: Victory or window dressing?


Spain bailout: Victory or window dressing?

Mon, 11 June 2012
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Spain bailout: Victory or window dressing?

European markets are clearly celebrating the announcement of Spain’s bailout as its major benchmarks soar 2.1% on average. Madrid’s Ibex35 index itself is rocketing up by 3.8% while the European banking sector is leading the advancers with a 3.6% rise.

Despite the markets’ evident relief at hearing the “good news”, the general feeling in international financial media is that uncertainty continues to persist. One Financial Times (FT) article titled “Doubt clouds robust Spain bailout” aptly shows a sense of distrust. The British paper reminds us that Eurozone finance ministers created a bailout for Greece two years ago that “underwhelmed and had to be enlarged just months later”.

The FT adds that even though they have moved quickly this time and with financial clout “it remains uncertain whether the speed and totals will be enough.”

The New York Times (NYT) offers a similar perspective in its piece titled “Europe dodges a bank crisis in Spain, but perils lurk”. The American newspaper notes that European officials seems to once again have avoided “financial chaos” yet is not shy to reveal its skepticism: “But Europe still faces far bigger challenges that threaten the Continent and with it, the world economy.”

The NYT assures its readers that beyond the costs associated with Spain’s rescue, “far harder to calculate are the costs if, after Greek elections next Sunday, the new government reneges on the bailout Greece negotiated with its European lenders a few months ago.” Above and beyond that risk, the New York paper also points out that this latest rescue has done “little to address European banks’ addiction to the borrowed money they have depended on for their daily financing needs.”

Reuters is also wary of the risks in its article “EU’s Spain bank rescue may bring only brief respite.” The agency also feels that Greece represents a major risk as “what has been termed a ‘bank jog’ from Greece and Spain could turn into a stampede if anti-austerity leftist parties opposed to the terms of Athens' EU/IMF bailout win the June 17th vote.”

Bloomberg’s focus is clearly shown by the headline “Italy moves into debt-crisis crosshairs after Spain”. The news agency cites Spiro Sovereign Strategy here in London as saying that “the problem for Italy is that where Spain goes, there’s always the perception that Italy could follow.” There is a clear case of contagion threat.

Bloomberg sums up the markets’ fears by quoting Hampstead Capital: “(People) are worried that Spain is the next Greece and Italy the next Spain.”