Stock Market: Spain Bailout May Only Bring Temporary Relief
Stock markets across Europe increased on news that Spain had accepted the equivalent of €100 billion ($125 billion) in bailout funds, though some seem to view this as only a temporary solution to much bigger problems on the continent. The upcoming elections in Greece, for example, are being watched very closely, as voters are set to determine whether or not the country ditches the euro. If that happens, officials fear that others may do the same.
Another concern right now is Italy, whose debt is quickly spiraling out of control. Considering the country is the third-largest economy centered around the euro, many feel that it’s really only a matter of time before they request bailout funds, as well. Spain’s rescue is the fourth recent European rescue, following Greece, Portugal, and Ireland.
“The decision to grasp the nettle looks set to be greeted positively by the markets for the time being, but it is likely to be no more than a relief pop,” explained CMC Markets analyst Michael Hewson. “The decision by Spanish PM Rajoy to acquiesce to the inevitable and request help for Spain’s ailing banking sector at the weekend is the first sign of an acknowledgment of the problems facing the Spanish economy, but the fact it took so long in the face of so much denial remains a problem with respect to the credibility of the Spanish administration.”
Following the announcement, France’s CAC-40 and the DAX in Germany rose 2.1 percent, while the FTSE index of leading British shares was up 1.3 percent. Additionally, the U.S. stock market was expected to open higher on the news.
Of course, analysts warn that the bailout may lose its luster in a relatively short period of time, using Greece’s problems as an example of how these situations don’t always pan out.
“I think it’s only a brief respite for the markets,” Tom Kaan of Louis Capital Markets said. “The €100 billion bailout is hopefully setting up a firewall against a much worse deterioration. Here we are, saving the banks. But what is next?”