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Global markets rally on news of Spanish bailout

Global markets have rallied on news that the Spanish Government is to receive a bailout from Europe to help it refinance its struggling banking sector.

Overnight in Asia the Nikkei 225 finished up 1.96 per cent at 8,624.9 while the Shanghai Composite Index was up 0.93 per cent at 2,302.64.

This morning the FTSE 100 opened up sharply, up 1.78 per cent to 5,532 by 8.20, while the Eurofirst 300 was up 1.9 per cent at 1,000.

In its first hour of trading, Spain’s Ibex lept by 5.3 per cent while Italy’s FTSE MIB and Germany’s Dax both rose by 2.1 per cent.

On Friday, the Spanish government abandoned claims it would not need a bailout and requested aid from Europe which could mean a loan of up to €100bn so it can recapitalise struggling banks. Estimates have put the amount of capital needed by Spanish banks at between €40bn and €100bn. Fitch says it expects the figure to be around €60bn.

Quoted in the Guardian, Spanish finance minister Luis de Guindos says: “€100bn is a maximum figure. It includes a considerable margin of security.”

The technical details are due to be put in place this week and depending on where the money comes from it could make it even harder for Europe’s fourth biggest economy to raise money from the market. If the loan comes from the European Stability Mechanism, set to begin operating in July, repayments of the loan would take precedence over other debt. Despite that, Spanish bond yields have fallen from 6.227 per cent to 6.054 per cent, well short of the 7 per cent generally deemed to be unsustainable.

The move is intended to shore up Spain’s position ahead of elections in Greece on June 17.


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