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Europe Crisis: Update on Spain
Spain remains in the crisis spotlight so we thought it was time for an update. Today, Spanish Prime Minister Mariano Rajoy announced his government's fourth austerity package which aim to cut the public budget by €65 billion over the next two and a half years.
According to reports, the package will include a 3% increase in the VAT to 21% from 18%, along with a reduction in unemployment benefits, the elimination of the year-end bonus for some public gov’t workers, the consolidation of local governments and the scrapping of a tax rebate for home buyers.
Rajoy also said that he may privatize airport, railway and port assets.
On the bank bailout front, the loan agreement to recapitalize Spanish banks is expected to be finalized on 20-Jul, though the Eurogroup already agreed on Tuesday to make €30 billion available by the end of the month for any lenders that are in urgent need of funds.
Reports indicate that “in-depth” (as opposed to cursory?) stress tests for 14 of Spain's largest financial institutions are scheduled to be completed by the second half of September. Following these tests, banks that have capital shortfalls will either have to raise new funds on the market or request help from the government. However, StreetAccount notes that before these banks can get receive any public support, they will have to impose losses on preferred shareholders and the holders of subordinated bonds, many of which are retail investors.
Spain will borrow the bailout funds at 3-4% and the loans will have an average maturity of 12.5 years. The money will first come from the EFSF, though the ESM will take control once it is up and running (which could take up to 3 months as Germany’s high court must first rule on the constitutionality of the ESM).
With the exception of France, European stock markets are modestly higher this morning.
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Other stories on Europe to review:
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EU to Jumpstart Loans to Spanish Banks
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Germany's Industrial Production Up in June
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Bank of England Launches 3rd Round of QE
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European PMI's Show Some Improvement
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EU Leaders Announce Measures To Ease Crisis
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Greece Has Formed a Government
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Eurozone ZEW Index Continues to Decline
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German ZEW Index Slides in June
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Greek Voters Support Euro and Bailout
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Spain Downgraded at Moody's
- Eurozone Industrial Production Declines
iShares EU - Last 12 Month
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