This Thursday and Friday, European leaders will be meeting at a crucial summit in Brussels. As German foreign minister, Guido Westerwelle, said on Monday, “This will be a decisive week for Europe.”
So far, the auspices are not exactly looking good for the euro, the euro zone, Europe and (in the wider view of things) the global economy.
On Monday, European stock markets tumbled and the euro fell amid fears that European leaders will be able to resolve the ongoing crisis. Here is some of what else happened:
Spain Requests a Bailout Without Calling It a Bailout
Monday started with Spain making a formal request for aid of up to €100 billion (about $125 billion) for its banks. But as Giles Tremlett observes in the Guardian, “Mariano Rajoy’s government refuses to even call this a bailout.” The government wants the funds to go directly to its ailing banks but euro zone rules require that they be funneled through Madrid, which would add to Spain’s sovereign debt. Hence, the Spanish government seems to be trying to drag the process out as long as possible, in the hope that the rules might shift by the time it receives the funds (which might not happen till September, when more audits of Spanish banks are available).
There is quite a lot to be sorted out: A think tank, Open Europe, argues that “taking into account that Spanish house prices may drop another 35 percent, the country’s banking sector could need an immediate €110bn capital injection to withstand potential losses.” Open Europe also estimates that the total exposure of EU countries to the Spanish economy is around €913 billion.
Later on Monday, Moody’s downgraded 28 Spanish banks due to the country’s debt and “souring real estate loans.” Twelve banks were downgraded to junk status. These cuts also indicate the extent to which the Spanish government’s creditworthiness has been reduced, says Bloomberg. Two weeks ago, Moody’s downgraded Spain’s sovereign debt to near-junk-status.
Cyprus Needs a Bailout Too
On Spain’s heels, Cyprus became the fifth euro zone member to request a bailout. Cyprus’ banks, which are heavily exposed to debt-ridden Greece, have been struggling; the small island nation may need as much as €10 billion ($12.5 billion). It needs €1.8 billion (about 10 percent of its gross domestic product) by Saturday, to shore up its second-largest bank, Cyprus Popular Bank.
In all, Cyprus’ banks have outstanding loans or other money at risk to the total of €152 billion, which is eight times the size of Cyprus’ GDP, says the New York Times.
Portugal Says It Won’t Require More Austerity (?); Housing Prices Up in Ireland For First Time in 5 Years
Both Cyprus and Spain have quietly noted that they hope the requested bailouts come with fewer terms than those for Portugal, Ireland and Greece. Portugal receive a €78 billion rescue package; its prime minister, Pedro Passos Coelho, says that it is meeting its budget goals and will not require further austerity measures, though there seems to be some popular doubt about this.
Housing prices have risen in Ireland for the first time since May of 2007. These had “slumped 50% between their peak and trough” so the small rise (0.2 percent in May from the previous month) is seen as a sign that prices are stabilizing.
Greek PM Has Eye Surgery, Finance Minister Discharged From Hospital and Resigns
The post of finance minister of Greece is, as the Guardian’s Helene Smith notes, “possibly the worst job on the continent of Europe,” Greece’s economy shrinking for the fifth straight year, some 1.2 million Greeks unemployed and “the easing of Greece’s latest EU-IMF sponsored bailout agreement now seen as vital if the debt-choked country is to get out of its economic death spiral.” At the end of last week, both the newly elected Prime Minister, Antonis Samaras, and his finance minister, Vasillis Rapanos, were reported to have such serious health problems that neither would be able to attend this week’s summit in Bruxelles at which Greece’s crisis is the top issue.
Samaras underwent eye surgery for a detached retina on Monday and doctors have told him that he cannot leave his house, though he can accept visitors.
Rapanos, the head of the National Bank of Greece, collapsed last Friday and was hospitalized complaining of “acute abdominal pain and dizziness.” After undergoing a colonoscopy and other tests, Rapanos resigned by early evening or, at any rate, withdrew from the position as he had not yet been sworn into it. The result is, as you will not be surprised to hear, “confusion over the country’s plans on how it will ask the EU to renegotiate its bailout conditions.”
Greek President Karolos Papoulias will be heading a delegation to attend the EU summit meeting due to the prime minister and the finance minister, whoever that will turn out to be, not being able to attend. According to the Ta Nea newspaper, Democratic left leader Fotis Kouvelis and Pasok Socialist leader Evangelos Venizelos, who was the finance minister when Greece received its second rescue package of €130 billion, had been thought likely to be part of the delegation but will not be.
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Photo of flags of EU member nations by lednichenkoolga