Spain teeters with bailout tag of around EUR 420 Billion, but EU upbeat that Eurozone is now safe

[John Baisley, Finance and Economy Contributor]

EUObserver:  According to EU Economy head, Olli Rehn  in his speech last week to the Brookings Institution, a US think-tank, the Eurozone has been saved. With Portugal‘s and Ireland’s bank bailouts in process, the EU economy head confirms that it is ‘mission accomplished’ and pats on the back all round for the EU.

However, the president of the IMF, Dominique Strauss-Kahn has since said that the EU’s actions to combat the crisis was not enough: “We are arguing here in the IMF for at least six months that there is a need for a more comprehensive plan on the European side. The piecemeal approach, dealing with interest rates one day and something else another day, is not working well“.

Furthermore EU analysts are saying that, celebration on the saving of the Euro is well premature as the severe problems that will be caused to the internal economies of the bailed-out countries via imposed ‘austerity’ programs, may well divide the EU and cause its disintegration despite any saving measures that may have been accomplished for the EURO.

In addition, they point out, Spain is increasingly becoming the bete noir of the PIGS (‘Portugal, Ireland, Greece and Spain’) bloc as a far as the Euro is concerned. With its unemployment rate at 20.5% and youth unemployment approaching 50%, the country’s problems are severe.  It has a has a high private sector debt and its bank have also taken the hit for some EUR100 billion as a result of the failure of Portugal’s economy. As such any bailout for it by the EU, which is likely, will be in the region of EUR420 billion which will be sure to bring the Euro crashing down as there will simply not be that amount of money about to cover that size of debt.

According to Spain’s central bank chief, Miguel Angel Fernández Ordonez: “2011 will be another year of adjustment, and for the banking sector, it will be one of the worst”.


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