Sunday, 10 June 2012

Spain's bailout confirmed, China still shows signs of slowing

Reuters reports that a bailout for Spain has been agreed upon.

Euro zone finance ministers agreed on Saturday to lend Spain up to 100 billion euros ($125 billion) to shore up its teetering banks and Madrid said it would specify precisely how much it needs once independent audits report in just over a week.

After a 2 1/2-hour conference call of the 17 finance ministers, which several sources described as heated, the Eurogroup and Madrid said the amount of the bailout would be sufficiently large to banish any doubts.

But doubts there still are, according to the Guardian's Heather Stewart.

Though €100bn – the figure cited by European ministers, if not by Spain itself – was a far larger figure than initial reports suggested, many analysts believe that, with capital flooding out of Spain, it will still not be enough to prevent a full-blooded bailout of the government at a later date. Fixing the banks will help the vital task of preventing the entire European financial system from freezing up; but it will do little for the Spanish economy, which is on its knees.

When financial markets reopen on Monday morning, traders will have to decide whether they are reassured that eurozone leaders have opted to act; or whether to start worrying about which country will be next. Italy, widely seen as the next domino to fall, could come under concerted attack.

While a crisis in Spain's banking system has been averted for the time being, the concern over a slowdown in China was not allayed after economic data released on Saturday.

Industrial output in China rose 9.6 percent year-on-year in May, more than the 9.3 percent rise in April, but urban fixed asset investments rose 20.1 percent in the first five months of 2012 on-year, weakening from 20.2 percent in the first four months, while retail sales rose 13.8 percent in May from a year earlier, down from the 14.1 percent increase in April.

Inflation also slowed to 3.0 percent in May, the lowest since June 2010. However, falling inflation does give policy makers the option of easing monetary policy to stimulate growth.

1 comment:

Anonymous said...

The Spanish bailout proposal seems to be its own beast: the usual pros and cons, but you clearly understand that. Although just before I stumbled onto a pretty neat article that seems to summarize the whole situation quite well ( In any event, I’m curious to see where this whole thing goes. Fingers crossed for the EU.

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