The euro fell to its lowest ($1.216) in more than two years after European policy makers unanimously approved a €100 billion ($122 billion) bailout of Spanish banks.
It was the equivalent of a vote of no confidence about the bailout bid. Said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London, in Bloomberg:
“We’re looking at a situation when people are realizing we’re at a point of debt restructuring and repudiation. It’s cold-hearted reality. The great blag and bluff of the euro zone has always managed to kick the can down the road, but it is no longer a viable strategy. We’re getting to a crunch point.”
Officials are still in dispute about who will assume the burden of the emergency loans, the banks or the Spanish government.
Spanish Prime Minister is predicting a second year of recession for Spain. Civil servants have been peacefully protesting in Madrid but things turned violent on Thursday night and police fired rubber bullets. The state of Valencia is seeking a rescue from the central government.; it is the first to do so.
Spain now finds itself paying record-high costs to borrow.
It is almost exactly a year since European leaders pledged to give Greece, where the debt crisis originated in 2009, a second bailout. An ally of German Chancellor Angela Merkel went so far as to endorse the possibility of Greece leaving the euro zone.
Greece must make a €3.1 billion bond payment mostly to the European Central Bank (ECB), which has said that Greek bonds are ineligible as collateral, the first “tangible message” that Greece has “no more room to maneuver and that the bailout agreement must be implemented.” The troika of the European Commission, the International Monetary Fund (IMF) and the European Commission return to Athens next week to see if it is meeting its targets for making cuts to meet the terms of its bailout agreement.
In addition, tourism is down in Greece, with ferries carrying 15% fewer passengers and 25% fewer vehicles than by the same point in 2011. The wildfires have meant the evacuation of a children’s summer camp, a retirement home and a monastery near Athens.
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