Global shares, euro jump as EU aids Spanish banks

London – The euro has jumped against other major currencies in Asian trading as the markets got their first opportunity to react to a weekend deal between Spain and the 17-nation single currency bloc to lend Madrid up to 100bn euros ($125bn) to bail out its battered banking system.

The euro rose nearly one per cent to $1.26694 on Monday, its highest level since May 23.The single currency bought $1.2643 and 100.45 yen against $1.2514 and 99.49 yen in New York on Friday.

The rise comes after a bailout package was agreed at the weekend, which Spanish economy minister Luis de Guindos insisted was not a rescue but a loan that imposed conditions only on the country’s banks.

Markets in Europe and Asia have risen in response to the bailout of Spain’s banks that was agreed over the weekend.

In early trading, the FTSE 100 in London rose 1.6%, the Dax in Frankfurt was up 2.2% and Cac 40 in Paris was up 2.0%. Spain’s benchmark index, the Ibex in Madrid, rose 4.4%.

Earlier, the Nikkei in Tokyo closed up 2.0%.

However, it marked a dramatic climbdown for Madrid, which had hotly denied any need for outside aid to prop up its troubled banking system.
 
Mariano Rajoy, the Spanish prime minister, said on Sunday that the eurozone deal had secured for Madrid a “line of credit” for the country’s debt-stricken banks that would ensure the “credibility of the euro”.
The Spanish leader insisted his government’s reforms since taking power in December had averted the need for a broader state bailout.

“If we had not done what we have done in the past five months, the proposal yesterday would have been a bailout of the kingdom of Spain,” said Rajoy.

“What happened yesterday was part of a global plan to clean up the Spanish economy and to lead to the creation of employment and economic growth,” he said. “We have to make these decisions to come out of the crisis.”

Rajoy insisted that Spain had not caved in to pressure from other nations and from the financial markets, which have sent Spain’s borrowing costs soaring on concerns over its banks and mushrooming debt.

Madrid finally sought aid as its borrowing costs on the open markets soared and the price for fixing the banks’ balance sheets, heavily exposed to a property bubble that burst in 2008.

Olli Rehn, the EU Economic Affairs Commissioner, said the Spain deal was critical to reassure jittery markets.

“It is a very clear signal to the market, to the public, that the euro (area) is ready to take decisive action in order to calm down market turbulence and contagion,” Rehn said.

Spain’s bailout means that it joins the other members of the so-called “PIGS” economies – Portugal, Ireland and Greece – by tapping international rescue funds to stave off the threat of bankruptcy. But with a GDP of $1.3tn, the fourth largest in the eurozone, Spain’s economy is twice the size of the other bailed-out countries combined.

Source: The Times Of Earth and Agencies