Policymakers met to hammer out more details of the rescue package for Spain’s banks. The eurozone has set aside €30bn to recapitalise Spanish banks, a downpayment on a total promise of €100bn. The money – from Europe’s rescue funds – will just have to go on Spain’s balance sheet at first.
But the understanding is that it will be converted into direct injections from the rescue fund, once a common European bank regulator is created in order to vastly improve oversight of the Continent’s banks. Spain will also have an extra year, to 2014, to reduce its budget deficit to under 3%. To that end, it announced a fourth round of austerity measures.
What the commentators said
One of the key problems facing the eurozone is that weak banks are “a millstone” around governments’ necks, said the FT. Now, with the deal that Spain’s government will not shoulder the loan from the rescue fund once a common bank regulator is created, “at least the beginning of a solution” to this problem is “visible”.
But the process “is shaping up to be a long slog”, as The Wall Street Journal pointed out. One element of the deal will involve an EU-wide deposit-guarantee scheme, which the ECB currently feels will threaten its independence.
In the meantime, the worry that Spain could need a wider bail-out is unlikely to recede much. “Piling on more austerity is no way to pull an economy out of recession and restore debt to sustainable levels”, said FxPro.com.
It tends to undermine growth and revenues and hence make the debt problem worse. “Markets know austerity alone cannot be the answer.” Far more emphasis on structural reform would buoy confidence in Spain, added The Wall Street Journal. Until then, any rescue measures “look like more new siding on a collapsed house”.
“Spain still looks likely to need a lot more help,” said Capital Economics. But not immediately: its short-term borrowing costs remain affordable and it only has to raise another €34bn this year. That’s just as well, because the eurozone rescue funds aren’t big enough to convince markets that they could bail out Spain and stop yields rocketing in Italy, which many fear will soon be applying for official help.
So Europe’s “chronic disease”, as Satyajit Das put it in The Independent, is still as far away as ever from being cured, and could soon “re-emerge in a more virulent form.”