another country throws the towel in on crank-o-
nomics(austerity):Spanish Bailout:Big Questions Still Remain:austerity
has never worked, yet the weak minded feverishly cling to it like a
life preserver
http://www.huffingtonpost.com/2012/06/09/spanish-bailout_n_1583720.html?ref=business
Mark Gongloff
mark.g...@huffingtonpost.com
Spanish Bailout: Big Questions Still Remain
Posted: 06/09/2012 5:53 pm Updated: 06/09/2012 6:35 pm
While European soccer players were expertly kicking the ball down the
field this weekend in the Euro 2012 tournament, European finance
ministers were expertly kicking their debt crisis down the road.
Spain's request on Saturday for a 100 billion euro loan (about $125
billion) to recapitalize its banks seems likely to be at least a short-
term solution to the worries lately that have gripped European
financial markets, raising concerns about a global economic slowdown
that could push the United States back into recession.
As the odds of a bank run in Spain have increased in recent weeks,
Spanish borrowing costs have soared, while the values of the euro and
risky assets such as stocks and commodities have tumbled. Saturday's
news could at least temporarily reverse some of those ugly moves.
Even better for Spain, it gets to avoid additional austerity measures
as a condition of the loan, as Greece and other bailed-out nations
have suffered in the recent past.
But still some big questions linger.
First, will 100 billion euros ultimately be enough? A report by the
International Monetary Fund suggests this will be more than enough and
that Spanish banks need to raise 60 billion to 80 billion euros to
mollify investors and cover losses in Spain's real estate market.
But those losses might continue to grow, which would mean that Spain
has to go back to the well again. JPMorgan Chase analysts recently
estimated that Spain could need as much as 350 billion euros, the
Telegraph reported.
Second, rather than injecting the money directly into Spain's banking
system, European nations will lend it to Spain. This means that Spain,
already more than 700 billion euros in debt, could end up more than
800 billion euros in debt. The new debt has been promised at a
considerably lower interest rate than the market currently charges
Spain -- recently more than 6 percent for a 10-year loan. Still, every
little bit of extra debt hurts. How much will the market punish Spain
for having more of it?
Finally, there's the question of who might be next. Now that Spain's
bleeding has been temporarily stopped, all eyes are quickly turning to
Italy, whose banks are also in trouble and whose own borrowing costs
are rising. And no one has forgotten about Greece, which holds a new
parliamentary election next weekend that could determine its future in
the eurozone -- an event that could spark fresh market turmoil and
have European officials holding hasty bailout conference calls all
over again.
Ultimately, longer-term solutions will probably involve even more
painful political choices than Spain's decision to seek a bailout.
Those choices will include nations giving up some control over their
own fiscal affairs, to form a more unified Europe. Officials may have
kicked such choices down the road just a little bit longer this
weekend, but they're going to run out of road one of these days.