Markets on knife-edge after vast bailout agreed for Spanish banks

By MARTIN FLANAGAN
Published on 11/06/2012 03:21

FINANCIAL markets open today on the brink of yet more volatility after the eurozone crisis deepened as Spain paved the way at the weekend for a €100 billion (£80bn) bailout of its beleaguered banking sector.

Analysts said that equities and currency markets could yo-yo as the day progressed, with sentiment on a knife-edge on whether the bailout in Europe’s fourth-biggest economy will spook or soothe investors.

One City analyst said: “Markets are likely to be nervous, but quite possibly ambivalent, when they open.

“Major bailouts migrating from so-called ‘peripheral’ single-currency countries like Greece, Ireland and Portugal to a core member like Spain can be seen as potentially signalling the end of the euro. That could send markets spiralling downwards again.”

However, another market strategist said: “A firm bailout for Spain might just be seen as the European Union grasping the nettle finally. That could steady markets after early wobbles. It’s a close call.”

The Spanish government said it would make a formal request to the European Union for aid from the European Financial Stability Facility following talks with eurozone ministers on Saturday.

A final figure on the size of the cash injection will only be available later this month after an independent audit of the Spanish banks. The best known of these in Britain is Santander, which has in recent years taken over Abbey, Bradford & Bingley and Alliance & Leicester.

MARTIN FLANAGAN

Related Articles

• Red mist in the City

  AS HE pushed his way through the crowds of photographers, reporters and party supporters gathered outside Liberal Democrat headquarters in Cowley Street, Westminster, Nick Clegg was about to send a cold shiver down the spines of traders sitting at their desks in the Square Mile. He was wearing a red tie.

• George Kerevan: Political solutions to euro's financial problems are a gamble

  THE euro is still in big trouble but the cause is not financial per se. The real cause is political. Which explains a flurry of diplomatic activity this week, culminating in tomorrow's EU summit.