That’s roughly $125 billion, or roughly one month of Spain’s gross domestic product.1
Eurozone agrees to lend Spain up to €100 billion
By Jan Strupczewski and Julien Toyer | BRUSSELS/MADRID | Sat Jun 9, 2012 8:27PM EDT
(Reuters) – Euro zone finance ministers agreed on Saturday to lend Spain up to 100 billion euros ($125 billion) to shore up its teetering banks and Madrid said it would specify precisely how much it needs once independent audits report in just over a week.
After a 2 1/2-hour conference call of the 17 finance ministers, which several sources described as heated, the Eurogroup and Madrid said the amount of the bailout would be sufficiently large to banish any doubts.
“The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to 100 billion euros in total,” a Eurogroup statement said.
Spain said it wanted aid for its banks but would not specify the precise amount until two independent consultancies – Oliver Wyman and Roland Berger – deliver their assessment of the banking sector’s capital needs some time before June 21.
“The Spanish government declares its intention to request European financing for the recapitalization of the Spanish banks that need it,” Economy Minister Luis de Guindos said at a news conference in Madrid.
More at the link.
Spain’s problems are not identical to those which have beset the other Eurozone countries: Spain’s problems involved having the country’s banks greatly overextended, and facing massive losses following the bursting of the property bubble. The government has already bailed out several regional banks to the tune of €15 billion, and the nation’s largest bank, Bankia, will cost €23.5 billion to save; it’s stockholders have been wiped out. Fitch Ratings had already cut Spain’s sovereign debt rating to BBB, just a couple notches above junk bond status.
Though things have yet to be finalized — there remains some discussion concerning the exact amount of the bailout — Spain will join Ireland, Portugal and Greece on the list of countries bailed out by the eurozone, and Italy might be joining that list shortly.
As the list of eurozone nations needing bailouts continues to grow, one has to wonder about the ability of the more solvent countries to keep bailing them out. France’s new Socialist President has just increased internal expenses for both businesses and the taxpayers; where will France, the eurozone’s number two economy, get the money to help out more failing countries?
Even as many European countries tighten their belts in response to the sovereign-debt crisis, French President François Hollande granted more generous pension benefits to some workers, delivering on a campaign promise ahead of legislative elections.
The government passed a decree Wednesday partially rolling back a pension overhaul that Mr. Hollande’s predecessor, Nicolas Sarkozy, had pushed through in 2010 to reduce the growing deficit of the country’s state-run retirement system.
The decree doesn’t change the standard retirement age, which is set to gradually rise to 62 years from 60. Yet, it allows people who started working at 18 or 19 to continue retiring at 60 under certain conditions. The government said the measure would raise labor costs because the new benefits, which will cost an estimated €1 billion ($1.3 billion) in 2013 and rise to €3 billion in 2017, will be paid for through higher payroll taxes.
At least the Socialist government was honest enough to admit that this will raise labor costs. The natural response of businesses? They have to reduce employment levels!
France’s unemployment rate rose in the first quarter as companies eliminated jobs in the face of faltering economic growth, posing a challenge to newly elected President François Hollande.
About 10.0% of the population was unemployed, up from 9.8% in the previous three months, according to International Labour Organization standards, national statistics office Insee in Paris said today. Excluding France’s overseas territories, the rate was 9.6%, compared with a median forecast of 9.5% in a Bloomberg News survey of five economists.
With some of France’s largest companies such as Air France- KLM (AF), PSA Peugeot Citroen (UG) and Carrefour SA looking to reduce costs, labor unions are pressing Hollande to make good on a campaign promise to prevent a wave of firings. Bernard Thibault, leader of France’s CGT union, estimated last week that 45,000 French jobs are at risk in the coming months.
The New York Times documented the difficulties in licenciement, or involuntary termination of workers in France. It’s complicated and costly, and hiring decisions in France are very serious ones, because it is very difficult for companies to correct an erroneous hiring decision by firing a bad employee. With a work week of just 35 hours and a minimum of five weeks of vacation a year — and usually more – France is a nation which pays a great deal for non-productivity. The worker who is on a paid vacation is an economic cost for his company, while he is not making the company any money through production, and earlier retirements mean more years of drawing money out of the retirement system and fewer paying into it. There is little wonder that French companies must be so careful about hiring new employees — an employee must be productive enough in the 44 to 47 weeks he does work to pay for the 52 weeks for which he is paid or he is a loss for the company — that it is unsurprising that French companies try to make do with as few employees as possible, which leads to the chronically high unemployment rate, and the retirement system must now bear greater costs for people who are no longer producing anything. It is difficult to see how, by increasing costs to businesses and the government, France will be in a position to help with future eurozone bailouts. Rather, it seems more probable that France will become one of those countries which needs a bailout.