Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

EU leaders set to announce 750bn Spain and Italy bailout deal
The Telegraph ^ | 6/19/2012 | Robert Winnett,

Posted on 06/19/2012 10:31:33 PM PDT by bruinbirdman

European leaders are poised to announce a 750 billion euro deal to bailout beleaguered Spain and Italy by buying the countries’ debts.

Pan-European Government funds are set to be used to buy Spanish and Italian bonds, which have recently hit record highs – in a move which will send a strong signal to financial markets that the German administration is prepared to back its weaker economic neighbours.

Angela Merkel and other European leaders have come under intense pressure at this week’s G20 summit to take radical action to stem the growing euro crisis which has pushed up the cost of Spanish bonds to unsustainable levels.

Francois Hollande, the French President, said: “It will be more on mechanisms that allow us to fight speculation”.

The French president said rates paid by Spain and Italy to borrow on debt markets were “unacceptable”.

“We must show a much faster capacity for action,” Mr Hollande said.

Under the proposed deal, two European rescue funds – the 500 billion-euro European Stability Mechanism (ESM) and the 250-billion euro European Financial Stability Facility (EFSF) – will be able to buy bonds issued by beleaguered European countries.

Previously, money in these funds – which has been provided by members of the single currency – has been used to bailout smaller European countries such as Greece, Portugal and Ireland. Governments in these countries are offered money direct return for agreeing to austerity programmes.

Under the new plan, the money in these funds will not be given directly to governments but will instead be used to buy up debts on the financial markets. The European Central Bank previously bought about 210 billion euros of bonds in this way but stopped last year.

It is hoped that the new plan will drive down the cost of Spanish

(Excerpt) Read more at telegraph.co.uk ...


TOPICS: Business/Economy; Crime/Corruption; Foreign Affairs; News/Current Events
KEYWORDS:
Navigation: use the links below to view more comments.
first previous 1-2021-24 last
To: CitizenUSA

750 billion is enough to push spain from a ratio of 60 percent of Debt/GDP up to around 110 or so.

Think of it this way. They have borrowed money on credit at, say several percent. Spain has to roll over the money that it borrowed (ie, pay out), when the term comes due. What has been happening is that instead of 2 percent, Spain is looking at 7 percent. At 100 percent of GDP - if borrowing costs hit 7 percent, that means that a full 7 percent of the economy is spent just on nedebt


21 posted on 06/20/2012 5:02:18 AM PDT by JCBreckenridge (Texas, Texas, Whisky)
[ Post Reply | Private Reply | To 4 | View Replies]

To: Mich Patriot

Germany + France have enough elbow room to do one more of these for about 1 trillion, less if Hollande manages to spend things up domestically. Would take about one or two years for Hollande to do that.

Which leaves Germany at 500 billion.

So the reckoning is almost at hand.


22 posted on 06/20/2012 5:06:33 AM PDT by JCBreckenridge (Texas, Texas, Whisky)
[ Post Reply | Private Reply | To 19 | View Replies]

To: JCBreckenridge
"What has been happening is that instead of 2 percent, Spain is looking at 7 percent. At 100 percent of GDP - if borrowing costs hit 7 percent, that means that a full 7 percent of the economy is spent just on nedebt"

Think of it this way: The 7% is on the benchmark 10 year bond. 7% compounded equals the principle in 10 years.

Now, if Spain could borrow at Germany's 2%, after 10 years there would be plenty left over for other things. They could even borrow to pay interest for a while.

At 7%, Spain is paying out, in interest, the entire value of the bond in the 10 years to maturity. They must roll over all bonds 'cause there is nothing left for maturity redemption.

When the benchmark hits 7% a country is doomed in short order.

Yes, even USA 10 years his 7%+ in the '80s, but not for long and the benchmark was 20 year bonds.

Spain can do 7%, but not for long, ergo the plea for help.

yitbos

23 posted on 06/20/2012 5:29:36 PM PDT by bruinbirdman ("Those who control language control minds." -- Ayn Rand)
[ Post Reply | Private Reply | To 21 | View Replies]

To: bruinbirdman

Exactly! Very cogent. They can bail Spain out now, but Germany and France only have enough firepower to do this once more.


24 posted on 06/21/2012 5:38:18 AM PDT by JCBreckenridge (Texas, Texas, Whisky)
[ Post Reply | Private Reply | To 23 | View Replies]


Navigation: use the links below to view more comments.
first previous 1-2021-24 last

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson