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EU-IMF Troika to Monitor the 100 Billion Euro Spanish Bank Rescue, Stocks Soar then Fade Quickly


EU-IMF 'troika' to monitor Spanish bank rescue

By News Wires (text)

France 24, June 11, 2012


Germany's finance minister on Monday stressed that billions of euros in aid to Spanish banks requested by Madrid would be overseen by European officials and the International Monetary Fund.

Asked whether Spain would avoid monitoring in the bailout, unlike previous deals with Portugal, Ireland and Greece, Wolfgang Schaeuble said: "No, there will be a troika in exactly the same way, that will of course monitor that the programme is being kept to."

"But this is only about a restructuring of the banking sector. That is the difference," added Schaeuble in an interview with German radio.

"While Portugal, Ireland and Greece are under macroeconomic adjustment programmes, it is important they are monitored ... Spain does not need that," he said.

"It's about Spanish banks, not about Spanish fiscal policy ... because on this point, Spain is on the right path," concluded Schaeuble.

"But the restructuring of the Spanish banking sector must be negotiated separately and it must be monitored to ensure that it is being kept to," he said.

On Saturday, Spain clinched a lifeline loan of up to 100 billion euros ($125 billion) for its crisis-wracked banks, sending stocks and the euro soaring at the open of trade on Monday before trader enthusiasm cooled as the day went on.

The eurogroup of finance ministers said after the meeting that "following the formal request, an assessment should be provided by the Commission, in liaison with the ECB, EBA and the IMF," referring to the European Central Bank and the European Banking Authority.

These authorities would also draw up "a proposal for the necessary policy conditionality for the financial sector that shall accompany the assistance," the statement said.

Madrid has flatly denied the aid amounts to a bailout, with Economy Minister Luis de Guindos telling reporters on Saturday that the loan did not amount to a rescue.

The government highlighted the fact that the deal imposed no new austerity measures or restrictions on the broader economy.

A spokesman for the German finance ministry, Martin Kotthaus, said later Monday that the funds were more likely to come from the European Stability Mechanism (ESM) bailout fund, due to come into force in July.

"We assume it is more realistic" that the ESM contributes the funds than its predecessor, the European Financial Stability Fund (EFSF), which has already stumped up for bailouts of Ireland, Portugal and Greece.

"The date (on which Madrid makes the formal request for aid) will be decisive in terms of which mechanism is used," added German government spokesman Steffen Seibert

Market euphoria over Spanish bank bailout fizzles

By Sonya Dowsett and Gareth Jones

Mon Jun 11, 2012 3:08pm EDT


Financial market euphoria over a European bailout for Spain's debt-stricken banks faded quickly on Monday as investors sounded the alarm over its impact on public debt and bondholders, and eyed the next risks in the euro zone's debt crisis.

EU and German officials said Spain faces supervision by international lenders after the deal to lend Madrid up to 100 billion euros ($125 billion), contradicting Prime Minister Mariano Rajoy who insisted the cash came without such strings.

European stocks leapt to a four-week high, with investors scooping up battered financial shares. But Spanish and Italian bond yields rose sharply as doubts set in about the impact and terms of the deal, designed to avert a run on Spanish banks.

Cyprus, which is deeply exposed to Greece, strongly hinted on Monday that it may apply for an international bailout before the end of this month, both for its banks and for the state. It would be the fifth member of the 17-nation euro area to require assistance since the debt crisis erupted in Greece in late 2009.

The European Commission's top economic official, Olli Rehn, told Reuters in an interview that the pre-emptive action to support Spain "is critical for calming down market turbulence in Europe and (ensuring) the proper functioning of the financial system in Spain".

Bondholders are worried that the rescue will weigh on Spain's fast-rising public debt. They also fear that if the euro zone's future permanent bailout fund, the European Stability Mechanism, is used for the rescue, they will be subordinate to official creditors and face losses in any debt restructuring.

"The EU is selling this as a 'great victory', but when you look at the details, this is a loan, and we don't know yet where the money will be coming from. At the end of the day, it will increase Spain's debt-to-GDP ratio no matter what they say," said Steen Jakobsen, chief economist at Saxo Bank in Copenhagen.

Previous "bailout bounces" have been short-lived, often fizzling within a day or two as investors anticipate the next flare-up in the euro zone's unresolved debt crisis.

Greece's general election next Sunday could rapidly sour market sentiment if radical leftists hostile to the austerity terms of Athens' EU/IMF bailout outpoll the mainstream conservative and center-left parties that signed the deal, or the vote ends in another deadlock.

Rajoy said on Sunday Madrid had scored a victory by securing aid from euro zone partners without having to submit to a full state rescue program, saying Spain's rescue had "nothing to do" with the procedures imposed on Greece, Ireland and Portugal.

But EU Competition Commissioner Joaquin Almunia and German Finance Minister Wolfgang Schaeuble said that as in those other bailouts, a "troika" of the International Monetary Fund, the European Commission and the European Central Bank would oversee the financial assistance.

"Of course there will be conditions," Almunia told Spain's Cadena Ser radio. "Whoever gives money never gives it away for free.

The IMF would be fully involved in monitoring Spain's program even though it was not contributing funds, and banks that received aid must present a restructuring plan, he said.

Schaeuble told Deutschlandfunk radio: "The Spanish state is taking the loans, Spain will be responsible for them... There will likewise be a troika. There will of course be supervision to ensure that the program is being complied with, but this refers only to the restructuring of the banks."


Spanish state finances are already under European Commission surveillance under the EU's excessive deficit procedure.

Dutch Finance Minister Jan Kees de Jager said in a letter to parliament that the loans would add to Spain's public debt, and he had insisted on full IMF involvement.

"It was essential for the Netherlands that the IMF will be involved in the whole process: reviewing the formal support request, determining the conditions, and monitoring progress," he wrote.

The Spanish government said it would stick to this year's borrowing program on financial markets. Spain still needs to refinance 82.5 billion euros of debt maturing by the end of the year, with a big hump at the end of October, and the autonomous regions have a further 15.7 billion euros of debt maturing in the second half of 2012. The central government and the regions also have to fund a deficit of about 52 billion euros this year.

The bank rescue package will add up to 10 percentage points to Spain's debt-to-gross-domestic-product level, taking it close to 90 percent, while the country faces a grinding recession, with nearly one worker in four unemployed.

Some economists believe Spain will eventually need a full state bailout, and that Italy may be next in line because of a similar combination of high debt and no economic growth, despite reforms initiated by Prime Minister Mario Monti.

Italian Industry Minister Corrado Passera dismissed the idea that Rome might need external help at some point.

"Italy has done what was necessary to save itself in past months," Passera, a former banker, told reporters in Milan, saying austerity measures taken so far had positioned Italy as "among countries better placed to deal with the financial turmoil Europe finds itself in".


China, to which Europe has looked largely unsuccessfully for financial support, said on Monday that the euro zone deal for Spain was a useful short-term fix, but urged the bloc to take more decisive action to safeguard longer term stability.

"This can be of great use in controlling short-term risk," Vice Finance Minister Zhu Ghuangyao told a news conference. "But, in the interests of mid- or long-term stability, we hope the euro zone will improve consensus and take more decisive action."

The Chinese critique of Europe's slow-moving steps mirrored comments by U.S. officials worried that the euro zone debt crisis is hurting world economic recovery and President Barack Obama's prospects of re-election in November.

U.S. Treasury Secretary Timothy Geithner welcomed the euro zone support for the recapitalization of Spanish banks as "concrete steps on the path to financial union, which is vital to the resilience of the euro area".

China's People's Daily, the mouthpiece of the ruling Communist Party, scolded Europeans for making such heavy weather of their financial problems.

"Fundamentally, Europe is facing a problem of systemic integration and survival. Overcoming the crisis depends on whether the debt-ridden countries can decide on painful reforms and rouse their spirits to tackle them," said a commentary signed "Zhong Sheng", or "Voice of China", often used to give the paper's view on foreign policy.

European Union leaders will discuss longer-term plans for deeper euro zone fiscal and banking union at a summit on June 28-29, as well as measures to revive growth. The more ambitious reforms would require treaty change that would take months, if not years, to approve and implement.

Finnish Prime Minister Jyrki Katainen told Reuters in an interview that the timely rescue for Spanish banks would make it easier to limit contagion from countries such as Greece.

"We have managed to avoid a major crisis but the problems are still there. Sovereign debts is still there and even though governments have done a good job, markets haven't valued them," Katainen said.

(Additional reporting by Michele Kambas in Cyprus, Simon Jessop in London, Justyna Pawlak and Marine Hass in Brussels, Lucy Hornby in Beijing, Fiona Ortiz in Madrid, Blaise Robinson in Paris; Writing by Paul Taylor; Editing by Peter Graff)


Stocks soar following Spain bank bailout

By Catherine VIETTE (video) News Wires (text)


European stock markets and the euro soared on Monday as investors welcomed news that the eurozone has agreed to lend Spain up to 100 billion euros ($125 billion) to save its troubled banking sector.

In morning deals, London's FTSE 100 index jumped 1.53 percent to 5,518.09 points, Frankfurt's DAX 30 advanced 1.92 percent to 6,249.57 points and in Paris the CAC 40 gained 2.0 percent to 3,113.24 points.

Madrid's IBEX 35 soared by almost 6.0 percent, before easing back to 6,847.4 points, up 4.50 percent.

Asia also rebounded sharply, with Tokyo 1.96 percent and Hong Kong 2.44 percent higher.

The euro rallied to $1.2671, as investors flocked back into the single currency on relief over the deal. It later stood at $1.2612, up from $1.2514 late Friday.

Brent crude oil prices meanwhile advanced back above the key level of $100 per barrel on hopes of improving energy demand.

"Spain's 100-billion-euro deal has certainly pleased the markets, with Asian equities rising strongly and European equity markets up," said Rebecca O'Keeffe, head of investment at online brokerage Interactive Investor.

"Europe's bond markets have reacted positively with periphery countries all benefitting and tightening versus core countries, while the euro is back above $1.26. Consensus from all markets is overwhelmingly positive."

Eurozone finance ministers on Saturday threw Spain a lifeline to save its stricken banks amid efforts to avert a broader financial catastrophe.

Spanish Economy Minister Luis de Guindos insisted the handout was not a rescue but a loan that imposes conditions on the banks. However, it marked a dramatic climbdown for Madrid, which had denied it needed any outside aid.


The nation's borrowing costs fell on Monday, but remained at levels widely regarded as unsustainable over the longer term.

Spanish 10-year government bonds yields tumbled to a low of 6.017 percent from the previous close of 6.08 percent.

"Spain's request for financial support from the European authorities to recapitalise its domestic banking sector is an explicit acknowledgement that it is unable to obtain the funds from the market without borrowing at unsustainable market rates," said analyst Lee Hardman at The Bank of Tokyo Mitsubishi UFJ.

The deal was meanwhile hailed by Germany, France, Japan, China and the United States as well as the International Monetary Fund (IMF).

But traders said the euro's gains were unlikely to last as the Spain deal was not a comprehensive solution to wider regional problems, especially given rising uncertainty ahead of Greek elections on June 17.

Investor concerns have weighed on the euro with tensions high over fears Athens may exit the bloc following the polls. The unit has tumbled to multi-year lows against the dollar and yen in recent weeks.

Spanish premier hails 100 billion eurozone lifeline

By Katharyn GILLAM (video) News Wires (text)

AP -

Spain's leader hailed Sunday a eurozone lifeline of up to 100 billion euros ($125 billion) to save its stricken banks as a victory for his nation and for Europe.

Despite flatly denying any need for a rescue just 13 days earlier, Prime Minister Mariano Rajoy insisted Madrid had not caved in -- instead he had been pressuring for the aid.

After an emergency video conference on Saturday, the 17 eurozone finance ministers said in a statement they they were "willing to respond favourably" to a Spanish plea for help.

"I am very satisfied, I think we have taken a very decisive step," Rajoy, who had been criticised in the media for failing to appear earlier, told a news conference.

"Yesterday, the credibility of the euro won, its future, and the European Union," the prime minister argued.

"It was not easy," he conceded.

"Nobody pressured me and I don't know if I should say this, but it was I who pressured for a line of credit."

The rescue loan for Spain -- hailed by Germany, France, Japan and the United States as well as the IMF -- marked a dramatic, public U-turn for Spain, which had hotly denied any need for outside aid.

But Rajoy sought to paint it as a sign of European confidence in his government's reforms and austerity measures.

"If we had not done what we have done in the past five months, the proposal yesterday would have been a bailout of the kingdom of Spain," he declared.

The eurozone debt crisis has now snared the bloc's fourth-biggest economy -- Spain's is twice the combined size of those of Greece, Ireland and Portugal, the countries bailed out so far.

Spain finally sought aid as its borrowing costs on the open markets soared and the price for fixing the banks' balance sheets, heavily exposed to a property bubble that burst in 2008, spiralled.

Recently nationalised Bankia, which has the largest exposure to real estate, needs an extra 19 billion euros to repair its books in addition to 4.5 billion euros already injected by the state.

Economy Minister Luis de Guindos told a news conference on Saturday that the loan of up to 100 billion euros did not amount to a rescue but Rajoy declined to be dragged into a semantic debate Sunday.

De Guindos said the loan would be provided on preferential terms and a source close to the talks told El Pais it would cost three percent a year, about half the latest open market rate Spain has had to pay.

The government highlighted the fact that the deal imposed no new austerity measures or restrictions on the broader economy.

Nevertheless, eurozone ministers said they were confident Spain would honour commitments to cut the deficit and restructure the economy. "Progress in these areas will be closely and regularly reviewed," they said in the statement.

Most of the Spanish newspapers' front pages headlined with the word "Rescue," although some sought so soften the blow. "Rescue without humiliation," insisted the conservative daily El Mundo.

"So we have a new concept. A 'lite' bailout with no material conditions on the sovereign and instead merely the banks that apply," Lloyds Banking Group economist Charles Diebel said in a report.

"This is the latest in the long list of euro measures to stem the crisis.

"Will it be enough? That's questionable as it is still prevention rather than cure and again only keeps the banking sector alive rather than really supporting growth."

The scale of the aid depends on an external audit being carried out for Madrid by consultants Roland Berger and Oliver Wyman. The audit is due by June 21 but de Guindos said it would ready within a few days.

International Monetary Fund bank stress tests, unveiled Friday three days ahead of schedule, determined that Spanish banks need about 40 billion euros in new capital, with a backstop on top of that.

Spain's economy minister stressed that the aid would include a big safety margin while the assistance is to be channelled through Spain's state-backed bank restructuring fund.

The eurozone hopes the rescue will satisfy financial markets and put Spain in a safe harbour ahead of the Greek elections on June 17, when there is a risk voters could reject their bailout terms, forcing Athens into a destabilising exit from the eurozone.

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