Spain Aid Hardly Means End for Euro Zone Woes

UPDATE: Spanish Prime Minister Mariano Rajoy celebrated the EU-funded rescue of the country’s banks, characterizing it as a victory for Spain, the euro and Europe. In what the Guardian describes as “a strangely triumphalist press conference,” Rajoy insisted the aid should not be seen as a bailout, but rather a soft loan for the banking sector. Rajoy had long denied that the country would need a bailout. Ultimately though any relief for the country’s economy and the euro in general that comes from this banks rescue “may be short-lived,” warns Reuters.

Some analysts insist the monetary aid for banks is only the beginning, and an eventual bailout of the state is likely inevitable. Meanwhile, Spain’s banks aren’t the only ones in trouble. In fact, there’s increasing concern that highly indebted banks in other weak countries, primarily Italy, could need very similar help over the next few months, points out the New York Times. And it’s not just Italy that has something to worry about. European banks in general would suffer great losses if Greece ends up leaving the euro, with financial institutions in France and Germany likely to be hit the hardest.

Saturday, June 9: It’s official. Spain will become the fourth European country, after Greece, Ireland, and Portugal, to receive bailout funds. Euro zone finance ministers say the region is ready to offer as much as 100 billion euros to Spain ($125 billion) to help the country bail out its troubled banking sector, reports the Associated Press. The cash would come from Europe’s bailout funds. The decision came after a conference that lasted more than two hours between the euro zone’s 17 finance ministers, “which several sources described as heated,” writes Reuters.

The amount of money Spain will receive is still not known as it will be determined by an ongoing audit that will result in two independent reports on its banking system, which should be ready by Friday, according to the Guardian. The total amount of the loan should be enough to cover the capital requirements of banks as well as provide a cushion for additional needs. World leaders have pushed Spain accept the cash before next week’s elections in Greece that many fear will translate into bad news for the markets, emphasizes the New York Times.

Spain’s economy minister, Luis de Guindos, insists his country should not be described as the fourth euro economy to require a bailout because the money would only be used to recapitalize banks. Spain is trying to convince its partners to leave the International Monetary Fund out of the deal but “it is unlikely to get its way,” points out Reuters. It looks like officials have agreed that the IMF would help oversee reforms in Spain’s banking sector.