Here Comes Spain...
The EU ministers are going to try and save Spain now.
They have, in principle, agreed to lend Spain nearly 100 billion EUR to help support the country's ailing banks. Madrid will tell the EU the exact amount after the independent audits are in from Oliver Wyman and Roland Berger on June 21.
The agreement was reached after a heated 2.5 conference call between the 13 EU Finance ministers. Both the Euro group and Madrid are saying the bailout will be big enough to squash any doubts about its effectiveness and whether it will work.
The Euro group stated that the "The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to 100 billion EUR in total."
"The Spanish government declares its intention to request European financing for the recapitalization of the Spanish banks that need it," Economy Minister Luis de Guindos said in a conference after the agreement. He further stated that the amount needed will be manageable and will cover all needs.
The G7 has also climbed on board and stated that the "G7 ministers welcome Spain's plan to recapitalize its banking system and the Euro group's announcement of support for Spain's financial restructuring authority."
Also the International Monetary Fund (IMF) stands ready to assist Spain as needed. "The IMF stands ready, at the invitation of the Euro group members, to support the implementation and monitoring of this financial assistance through regular reporting," IMF Managing Director Christine Lagarde said in a statement.
The IMF will also help monitor the monetary assistance the EU will give to the Spanish banks in order to ensure that Europe will not have another Greece. The IMF has also stated that they believe the amount of the loan is ample to cover all of Spain's needs at this time. The agency will also monitor Spain to make sure they implement economic reforms to control the burgeoning debt load.
It is quite evident that the EU and the G7 do not want another Greece. However we must all realize that Spain's economy dwarfs Greece. In 2001, Spain's GDP was $1.413 trillion compared to Greece's $294.339 billion in 2011. Can the EU even think of saving Spain like it has tried to save Greece? Further, the EU seems to be rushing to shore up Spain's banks before the June 17 Greek elections which could push Athens closer to leaving the European Union unleashing another wave of contagion. Is this wise? Especially since the audit to see exactly what Spain needs is not due until June 21?
For now, the financial markets might be calmed by what investors perceive as good news out of the beleaguered Euro zone.
