Spanish Bailout Could Be As High As 100 Billion Euros
Eurozone ministers have decided to loan Spain an amount that could be as much as 100bn euros or more. This equates to over 2000 euros for each person living in Spain. The precise total sum received by Spain is to be decided after audits of its banks which could be completed within a few days. Mario Rajoy the Spanish Prime minister has called the deal a “victory” for his country as well as the 17 nation Eurozone.
The funds will come from the European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF). The market has recently commanded greater returns for any loans to Spain; this has in turn made it far too costly for the Spanish to obtain the required funds. One of the concerns now is that the loan will put an additional strain on the Spanish nation's creditworthiness. This deal might, however, help calm the market forces for a while; the EUR/USD is trading near multi-year lows and recent data from the Commodity Futures Trading Commission (CFTC) shows that large speculators (hedge funds and similar organizations) are more bearish on the euro than they have ever been. There is now potential for the euro to rally as traders liquidate positions due to the bailout.
Spanish PM Rajoy has said that Spain is only obtaining “a line of credit” rather than a bailout. Timothy Geithner, the US Treasury Secretary, advised that the loan was "important for the health of Spain's economy and is concrete steps on the path to financial union, which is vital to the resilience of the euro area".
The next key event for the Eurozone will come when Greece goes to the polls on June 17th to elect a new government. This may determine if Athens is going to stick with the fiscal austerity measures, or move on from them. A continuation of the recent financial market volatility could quite easily follow the elections on a Greek rejection of the Eurozone.