Twice in less than a month, European ministers have negotiated through the night to hammer out measures to address the debt crisis. Monday into Tuesday night, they pulled (as it were) another all-nighter to
1) offer €30 billion in immediate loans to Spain’s troubled banks
2) give Spain more time to meet its deficit targets.
Spain is actually to receive a bailout package more to the figure of €100 billion ($125 billion).
While this announcement seemed to restore some optimism with European stock indices up in the middle of the day, the euro still fell against the dollar.
Throughout Tuesday, at issue was whether bailout funds can be used directly to recapitalize Spanish banks rather than the funds first going to governments and therefore being added to their debt. Spain has been seeking to avoid the latter scenario so as not to raise its debt, understandable given some other bleak economic circumstances including land selling at 80-95 percent of its value and really high unemployment, especially for youth.
By the end of Monday, an agreement wa formally reached for Spain. It comes with strings attached including regular three-monthly examinations by the European Council as well as an increase in sales tax and raising the retirement age to 68 (pdf).
Plus, Ireland and Greece have been eyeing Spain’s deal and are likely to seek to renegotiate the terms of their bailout packages.
Meanwhile, the German constitutional court has begun deliberations as to whether the European Stability Mechanism (this is the euro zone group’s permanent bailout fund) is legal because if potentially restricts how tax money is spent.
Adding to uncertainties in Italy is Prime Minister Mario Monti planning to step down in 2013. His economic expertise has helped to steer Italy through the debt crisis but implementing the measures is a task caught up in “politics-as-usual.” After Monti’s announcement, the euro fell to 1.2236, a new two-year-low against the dollar.
It is probably not inaccurate to suspect European finance ministers, and politicians, have more long nights ahead of them.
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Photo of Brussels at night by doegx
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