Photo: Pablo Blazquez Domingues/ Getty Images
Markets have been crushing Spain since this weekend, after its government finally asked for an ambitious bank bailout.So far, the details of the plan have not particularly excited investors. But are things beginning to change?
The Spanish IBEX 35 is up 1% per cent this morning, and yields on government bonds are relatively steady after shooting higher on Monday and Tuesday.
A handful of reasons to believe this might be the case:
- There’s probably some room for EU leaders to reconsider the seniority clauses written into the European Stability Mechanism—the permanent EU bailout fund that would be part of the Spanish bank bailout. Those seniority clauses would explicitly subordinate private sector lenders, though the lack of such wording would still subordinate them implicitly.
- €100 billion ($124 billion) is actually a lot of money. Have investors been too quick to deride this amount?
- Spanish PM Mariano Rajoy and others are already pressing for far more sweeping measures from EU leaders, particularly from the European Central Bank, to halt what they see as a worsening credit crunch. Such measures could include restarting ECB bond-buying programs, although Rajoy goes as far as to suggest “centralized control of [European] finances.”
- If the bailout plan is implemented correctly, then this could be the start of a true European banking union. Don’t forget that the only details we have on this so far are very scarce.
- Markets have repeatedly panicked over European headlines, but leaders have consistently been able to quell the flames. Why should this time be any different?
True: Spain’s economy is too big to fail and too big to fail. Its problems are real and incredibly grave. Even so, there is reason to believe that we may not yet be at a tipping point.