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Spain’s €100bn bailout

Publication date: 11 June 2012
Author: Alistair Cotton, Currencies Direct

As widely expected, Spain secured €100 billion of EU funds to shore up its ailing banking system on Saturday evening. It may be more or less than that figure depending on the independent assessment of the needs of each bank. There are around €180 billion of ‘troublesome’ property loans still on the books of Spanish banks according to their central bank. So the question on everyone’s lips is- will €100 billion be enough? The markets have certainly reacted positively this morning. The Euro has broken above the 1.26 level against the Dollar, and equity markets in Europe are posting strong gains.

We await full details, but the main things to consider will be how each member countries liability increases now presumably Spain will no longer act as guarantor. First estimates put Germany’s liability increasing from 29% to 33%, France’s to 25% from 22% and worryingly for Italy, its share rises from 19% to 22%. More importantly, will the lack of any strings attached to the ‘credit facility’ extended to Spain, prompt those waiting in the wings for a bail-out (Cyprus) and those already in receipt of EU funds (Ireland, Portugal & Greece) to push for more favourable terms?

Big ticket data out this week comes predominantly from the US, with retail sales and CPI data due on Wednesday and Thursday. In the UK the Bank of England Governor Mervyn King is due to speak, potentially setting the scene for further QE beginning as soon as next month. The market is certainly looking for the hint, which remains more important than the specific dates it may begin.

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