Spain's EU Bailout

       As expected, Spain took up Germany's offer of a face saving way of acquiring euro help directly for its banks-rather than through the national government.

       "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"

       At least relatively speaking that has to be a positive development going into this week, one might think the market will do well with this news though it was expected. It shows that the EU and Germany get how precarious things really are.

      "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 told a news conference in Madrid.

      "He said the amounts needed would be manageable, and that the funds requested would amply cover any needs."

       "A bailout for Spain's banks, beset by bad debts since a property bubble burst, would make it the fourth country to seek assistance since Europe's debt crisis began. With the rescue of Greece, Ireland, Portugal and now Spain , the European Union and International Monetary Fund have now committed around 500 billion euros to finance European bailouts."

       "The Group of Seven developed nations welcomed the plan, saying it marked an important step toward more fiscal integration in the region."

         http://www.cnbc.com/id/47747620

         The Obama Administration also welcomed the move:

         "U.S. Treasury Secretary Timothy Geithner welcomed the euro zone's action, calling it an important step toward financial union.

         "We welcome Spain's action to recapitalize its banking system and the commitment by its European partners to provide support," Geithner said in a statement. "These are important for the health of Spain's economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area."

          "Sources involved in the talks said there had also been pressure applied on Madrid to make a precise request right away, but Spain had resisted."

          "Euro zone policymakers are eager to shore up Spain's position before June 17 elections in Greece which could push Athens closer to a euro zone exit and unleash a wave of contagion. Spain's auditors could report back after that date."

          "Nonetheless, analysts said financial markets may be calmed by the announcement when they reopen on Monday."

          "The figure of up to 100 billion is more encouraging and pretty realistic; it's an attempt to cap the problem," said Edmund Shing, European head of equity strategy at Barclays. "The issue, however, is there is still a lack of detail about where the money's coming from, which is crucial. The market will treat it with some caution until they see how it will be funded."

          "The Eurogroup said the funds could come from either from the euro zone's temporary rescue fund, the European Financial Stability Facility (EFSF) , or the permanent mechanism, the European Stability Mechanism, which is due to start next month. Finland said that if money came from the EFSF, it would want collateral."

           "EU sources said there was a preference to channel money to Spain through the ESM, rather than the EFSF. Under the ESM, an approval rate of 90 percent or less is needed to trigger aid, and the fund also has more flexibility in how it operates."

           "That's why it's so important that the ESM ... be ratified quickly," German Finance Minister Wolfgang Schaeuble said.

            The immediate crisis in Spain was caused by the concern that Greece would leave the euro which caused a run not just on Greek banks but in Spain while spiking yields in Spain, Italy, and Portugal. Hopefully this will be s positive shock to stem the tide.