Bailouts For Spain, Cyprus Loom: What’s the Euro’s Fate?

Cyprus, the Mediterranean island with a population of about 1 million, is edging closer to seeking a bailout from the European Union, a further sign of how the economic crisis in Greece is spreading to other countries. Cyprus’ economy is about 17.3 billion euros but its exposure to Greece, which is in its fifth year of recession and whose exit from the euro zone is increasingly discussed not as hypothetical but a possibility, is 23 billion euros. Cyprus’ credit status was downgraded to junk last year by two major credit agencies and last year it borrowed 2.5 billion euros from Russia.

It is another sign of how the euro zone is “lurching to a crossroad,” writes Landon Thomas, Jr. in the New York Times, with repercussions felt throughout the globe. The question has resonated after last Friday’s gloomy data on three fronts, with reports of record-high unemployment in the euro zone, sluggish job creation in the US and manufacturing slowing down in China. All of these suggest that a second global recession could occur.

Last week, both Mario Draghi, president of the European Central Bank, and Olli Rehn, the most senior economic official in Brussels, expressed fears for the futre of the euro zone, with Rehn saying that steps to bind the 17 nations comprising it together must be taken to avoid its dissolution.

Fears that Spain, whose economy is the fourth-largest in the euro zone, is on the verge of a banking collapse loom large: Spain has about $273 billion (about 220 billion euros) in failed real estate loans which, Thomas says, is a figure larger than the entire output of the Greek economy. Rescuing Spain, and possibly Italy (the third-largest economy in the euro zone), would cost 350 billion euros. Italy would cost more; such sums would easily overwhelm the 500 billion euros in the new European rescue fund, the European Stability Mechanism.

Will Spain Seek a Bailout?

In the Daily Telegraph, José María Beneyto, foreign affairs spokesman in Spain’s parliament, was quoted saying that such a bailout would “not be the apocalypse.” Spanish officials have denied Beneyto’s comments; on Sunday, premier Mariano Rajoy said that Spain would recover “on its own strength” and that “if it is urgent to solve Spain’s situation, it is equally urgent to solve the problems of the whole eurozone.”

EU officials will meet this month at a summit in Brussels to discuss a “master plan” for the next ten years. Chancellor Angela Merkel of Germany wants to give more powers to the European Commission in Brussels, through treaty changes over the next five to ten years, in an effort to “remake the Continent’s economy after Germany’s own, with less-regulated labor markets and higher retirement ages at the top of the list.” Thomas writes that she also wants to see “strict deficit controls enforced across the euro zone by the European Court of Justice, as part of the broader ceding of national power at the heart of her vision for more centralization.”

But such measures do not address the immediate crisis. The Daily Telegraph points out that Germany has a “de facto veto on all key decisions” that EU officials make about the euro zone and “Europe’s Latin bloc and world leaders” are putting the pressure on Merkel:

Leaks of a teleconference call on Wednesday reveal that France’s François Hollande, Italy’s Mario Monti and US president Barack Obama launched a three-pronged attack, pressing Ms Merkel to drop Germany’s veto on the use of EU rescue funds for banks.

The trio repeated their demands three times with mounting tension. Each time she answered no, first in English, and then in German for precision, according to details obtained by Italy’s La Repubblica.

“Germany does not want the fund to spend billions in exchange for collateral from ruined banks. I don’t see why we should end up holding bits of bankrupt lenders,” she reportedly told them.

Hollande, Monti and Obama all warned that, if Spain must seek a bailout, markets will consider it insolvent as the euro zone will deepen even further. Is the euro zone not already at a crossroads?

 

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Photo by Images of Money

10 comments

Troy G.
Troy Grant5 years ago

Here is an idea:

Have the Forbes 500 who profited mightily from the fiasco, bail them all out.

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Luvenia V.
Luvenia V5 years ago

Europe was destroyed by so called American values and American companies think interest swaps. When the FEW control the MANY the MANY will always lose. Globalization and LOL, LOL, Free Trade is a joke, a fail experiment.

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eusebio vestias
Eusebio vestias5 years ago

Estou de acordo amiga os lideres da Europa são uma bagunça a crise do Euro ainda não tem o seu fim a Alemanha quere que os estados membros cumprem o tratado Real agora o contágio deste filme vai contagiar o resto do globo

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John B.
John B5 years ago

Thanks for the article Kristina. The EU is in a mess and it will affect us here in the USA.

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Max M.
Max M5 years ago

Europe's economic woes are going to effect the entire globe. Get ready, if you can.

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Miguel S.
Miguel Suarez5 years ago

As far as I am concern Spain was much better when they were using their own currency and not under the fist of Germany.

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Ettore G.
Ettore G.5 years ago

If all the goods in the World were 100 apples and only 10 people lived on this Planet, these 10 people would have 3 choices:

1) Each could share the 100 apples.

2) Everyone could compete (or fight) for those 100 apples so that some may have more than 10 apples and some will end up with none.

3) All people could be guaranteed to have 10 apples and those who are willing and capable to produce from that starting point could have even more (for example planting the seeds of those apples). Their work would then become a reward besides those 10 apples needed to survive

Communism is choice number one.

Capitalism is choice number two.

Commutalism is choice number three.

The difference between these 3 is that corruption could infect the first or the second choice but not the third which is born with a new “immune system”.

Aside from corruption,

Communism limits the human spirit and dims the ambitions which are needed for the spark of new ideas and advancement. This concept of sharing finds its main obstacle in the Ego within any Human being.

Instead,

Capitalism exploits those economically weak and values the human being according to wealth and private property. Based on competition and discordance this system will punctually lead to unsustainable extremes.

If Commutalism was to rise it would be like a new race for those who want to run while for all others ....... they will still have 10 apples.

www.wikinfo.org/index.php/Commutali

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Martha Clunie
Past Member 5 years ago

Mariano Rajoy is seen on the news almost every day saying that Spain will not need to be bailed out by the European bank. I don't know what planet he's on - he obviously has no idea how bad things are. Or he's playing a very dangerous game!

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Luvenia V.
Luvenia V5 years ago

Globalization and (LOL, LOL) Free Trade has tanked the world’s economy just as planned. Even a MORON knows that the ONLY way free trade can work is for every country to LOWER their standard of living to the POOREST country doing the trading. Every worker will become serfs or slave labor and ALL safety regulations, labor protection and pollution regulations will be gone.

The bankers, the investors and the corporations are winning. WE became a SMALLER government about 100 years ago when the FED Reserve took over and the power of the PEOPLE was turned into the power of the CORPORATIONS. How is that working out for America, for the WORLD???

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Teresa Wlosowicz
Teresa W5 years ago

mhmmm...

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