By Lisa Bryant
Jitters about Spain’s financial crisis eased slightly after Madrid raised roughly $2.62 billion from a bond-market sale, although at high interest rates. But there are more worrying signs for the eurozone, including a rise in French unemployment.
Spain’s successful bond sale shows Madrid can still access credit markets. But the high interest rates underscored investor fears about the country’s troubled banking sector.
However, European leaders may be closing in on a rescue agreement for Spanish banks. An analyst for the Brussels-based Bruegel research organization, Shahin Vallee, believes a deal may be reached within days, although the details may not be announced until the next European Union summit later this month.
“The fact that everybody is coming to terms with the idea that financial assistance is needed is a positive development. The disagreement between Paris and Berlin are probably on the amount and also on the use of the money,” said Vallee.
Germany tough on conditions
Germany, Europe’s largest economy, will likely want tough bailout terms for Spain that will include close oversight. Vallee says France will be pushing for a broader restructuring of Europe’s banking system.
Spain has not yet asked for EU aid. Spanish officials are determined to avoid the same stringent conditions that lenders imposed in bailing out Greece, Portugal and Ireland. Analysts say Madrid holds a bargaining chip – as the eurozone’s fourth-largest economy, its collapse would be disastrous for the 17-member currency union.
Pressure is on for European leaders to act swiftly to resolve the Spanish crisis and the larger eurozone debt problems. That message was delivered by the European Central Bank this week, when it left its main interest rate unchanged at 1 percent.
At a news conference, ECB chief Mario Draghi said monetary policy is not enough to address the eurozone crisis.
“We have seen that this crisis is the product of many many factors,” he said. “Some have their roots in their national government policies. Others have their roots in the fact that our integration process has reached a point where it has to question itself and decide whether it wants to move further or not.”
More worrying economic news came from France, Europe’s second-largest economy. Newly posted figures show unemployment at 10 percent – a 12-year high.
But analyst Vallee believes newly elected President Francois Hollande, who has been promoting growth as a key solution for Europe’s woes, has some breathing room.
“I think France really has a number of domestic policy issues to deal with. But if Hollande contributes positively to solving the European crisis, I think he can buy some time before delivering important structural reforms in France,” said Vallee.
For Spain, the next key test may come Monday, when the International Monetary Fund issues a report and independent audit of its banking sector.