Spanish Prime minister Mariano Rajoy has finally called for outside aid to help assist the struggling country’s finances. The plea comes after weeks of the Prime minister vehemently denying that the country needed outside help.
Rajoy told the Madrid senate that the country is “in an extremely difficult situation” and called on Europe to stand by the mutual obligations of euro membership. “Europe must say where it is going and show that the euro is an irreversible project that is not in danger, that it helps nations in difficulty,” he told Spain’s senate.
Treasury minister Cristobal Montoro confessed that Spain can no longer raise money. “The market is no longer open. The risk premium is telling us that Spain as a state has a problem accessing the market when we need to refinance our debt.”
More and more of the nation’s banks are dependent on European central bank funding with 96 banks needing €119.4billon, the Bankia group is still in need of a further €19 billion, money that the Spanish government does not have. Adding to the countries woes, data released earlier today showed that industrial output dropped by 8.3% in April, consumer goods fell by 16% and capital goods by 14.9%. Unemployment is continuing to rise and is expected to breach the 25% mark.
Rajoy’s plea has so far been refused by the Germans as they want the Spanish to formally request a bailout. Rajoy, is reluctant to do this as a request for a full-scale EU bailout would come with draconian and humiliating terms.
The European Commission is set to unveil new plans to give far-reaching powers for regulators to deal with failing banks, marking a significant step in the direction of a banking union. Under existing rules for the bailout fund, money may go only to governments that can request a state rescue and then use the cash to shore up their distressed banks. The Commission’s 156-page draft will suggest giving supervisors powers to “bail in” or force losses onto bondholders of a bank so that taxpayers are kept off the hook.
Unfortunately any legislation is unlikely to take effect before 2014. That would be too late for Spain and its ailing banks.
In a speech in Italy at the weekend the financier George Soros warned that the Euro may only have three months left to live in its current form.
“The likelihood is that the euro will survive because a breakup would be devastating not only for the periphery but also for Germany, which is likely to do what is necessary to preserve the euro – but nothing more. That would result in a Eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer of payments … it would be a German empire with the periphery as the hinterland.”
It is becoming clear that unless the European leaders take a firm collective stance on the crisis which has been left to drag on for far too long then the Euro is doomed to be a failed project. A project that has cost trillions of Euros, destroyed governments and ruined lives. Fiscal unity is the only option for its members.
Better than expected consumer spending figures from Germany and optimism that the EC meeting will lead to an effective plan has seen the Euro strengthen slightly against its peer currencies.
The Pound to Euro exchange rate is currently trading at 1.236
The Pound to US Dollar exchange rate is currently trading at 1.545
The Euro to US Dollar exchange rate is currently trading at 1.250
The Euro to Pound exchange rate is currently trading at 0.808
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