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Spain Seeks Aid and Euro Banks Call for Reform

 

Even while Spain’s banking crisis became steadily more severe, the country maintained it would be capable of handling the crisis on its own. But now, increasingly high borrowing costs are forcing the government to change its tune and reach out to other countries for aid in recapitalizing its banks.

Despite its newfound supplication, Spain still hesitates to go so far as to seek an official bailout, says Fidel Helmer, a trader with Hauck & Aufhauser Private Bank:

“Spain does not necessarily want to take advantage of the euro rescue mechanism because it would mean that Spain’s rating would be further downgraded. They want to avoid that because above all, the dilapidated banks are to blame for the misery.”

In the meantime, as financials straits get more dire every day in the eurozone, the European Central Bank (ECB) and other institutions are re-examining their financial aid mechanisms.

Specifically, they’re calling for a European banking union that could act as a “lender of last resort,” which, in effect, would take much of the problematic bailout pressure off the ECB and make it more feasible to grant cheap loans to those countries in need.