With the exception of the humiliated Spanish government, the world is reacting with relief to the news that the eurogroup is supplying funding aid to Spanish banks.
Even when rumors intensified on Friday (June 8), the European Commission still refused to comment on a possible aid program for Spain. But now, Commission President, Jose Manuel Barroso, and Olli Rehn, Commissioner for Currency Affairs, officially welcomed the “communication by Spain of its intention to request the support of the euro area for the restructuring of its financial sector, and the Eurogroup's positive response to this.”
The Commission, they said, will now assess the situation in Spain in close liaison with the ECB, the European Banking Authority and the IMF and then “propose appropriate conditionality for the financial sector”. Barroso and Rehn closed their statement with an optimistic outlook. “With this thorough restructuring of the banking sector, together with the ongoing determined implementation of structural reforms and fiscal consolidation, we are certain that Spain can gradually regain the confidence of investors and market participants”.
Very limited problems, says Schäuble
Germany's finance minister Wolfgang Schäuble pointed out in a written statement that Spain was on a good path overall and that even “the biggest Spanish banks are stable”. “But a part of the financial sector still has to respond to the consequences that the bursting real estate bubble has had,” he added.
Schäuble also stressed that Spain has not yet made a formal request. “I approve of Spain's decision to wait for a second independent evaluation of the banks' needs before the government actually files its request.” His French colleague Pierre Moscovici said: “This agreement will foster new growth across Europe.”
Schäuble and his colleagues seem keen to keep the degree of humiliation for the Spanish government as low as possible. Some ten days ago, Spain's Prime Minister Mariano Rajoy swore that the Spanish banking sector was not going to need outside help. It was no secret that many governments, Germany in particular, kept urging Spain to accept outside help. Most key players now hasten to point out that the program for Spain's banks is in no way comparable to the extensive rescue programs for Greece, Portugal and Ireland. But not everybody is quite as subtle. The headlines of most Spanish newspapers on Sunday read ‘Rescue'.
International partners are relieved
The world reacted with a big sense of relief. The head of the IMF, Christine Lagarde, hailed what she called the ‘credible' 100-billion-euro financial lifeline Spain sought from the eurozone. The IMF this time is not going to be involved in the support - one of the major differences to the aid programs for Greece, Portugal and Ireland.
US Treasury Secretary Timothy Geithner said the measures were “important for the health of Spain's economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area.” The US lately has kept urging the Europeans, and the Germans in particular, to do more for the stability of the currency union. Japan's finance minister, Juri Azumi, called the agreement a ‘major first step' to stabilize the European and global economies – a clear indication of how much even East Asia expects from a stabilization of the euro.
Rating agency Moody's said it was expecting the banking problem to stay limited to Spain and not have any spillover effects on other countries – apart from Italy, where the ECB has stepped in and has bought government bonds to limit the country's loan costs.
But the next major, if not the decisive, test for the euro is yet to come: the elections in Greece on June 17.
Author: Christoph Hasselbach / nh
Editor: Gregg Benzow