Post by jjcc32 on Nov 16, 2013 10:15:02 GMT -5
Euro Crisis Reprieve: End to Bailout Programs Signals Recovery
Some four years after the euro crisis began, Ireland and Spain are set to graduate from their bailout programs, with Dublin planning to begin financing itself again early next year. It's a positive sign, but economists warn against premature optimism.
The summer of 2012 was horrific for Europe. The euro zone seemed on the verge of collapse, investors were reluctant to lend money to debt-burdened countries and interest on Spanish and Italian bonds breached the psychologically critical 7-percent mark. A €100-billion ($135-billion) emergency loan package to Spanish banks hardly calmed the tension. And things looked even worse for Greece, which seemed incapable of fulfilling the demands of its creditors. German Economy Minister Philipp Rösler voiced the idea throwing Greece out of the euro zone, but not even Germany was immune to the chaos after Moody's threatened to downgrade the country's top credit rating because of a potential spill-over effect.
That was all about 16 months ago, and the euro zone now appears to be in much better health. Finance ministers from the 17 countries that use the common currency met in Brussels on Thursday to discuss releasing Ireland and Spain from their respective bailouts.
Irish Prime Minister Enda Kenny had announced before the meeting that his country would begin raising its own money and financing itself again by late January or early February. It even passed on a just-in-case emergency credit line offered by European partners. In 2010 Ireland had accepted a €67.5-billion line of emergency credit from the European Union and International Monetary Fund after interest rates on the open market became unsustainable.
Spain, too, is expecting an end to its bailout program, which was given straight to struggling banks rather than the government. Ultimately the country's banking sector needed only €40 billion of the €100 billion offered.
Progress Being Made
Economic experts like Lars Feld say the former problem children of the euro zone are on the right path. "In Ireland there have been steps forward from the beginning," says Feld, who runs the Walter Eucken Institute in Freiburg. "Meanwhile states like Spain and Portugal are also developing happily." All three countries have made it through their recessions and registered slight economic growth -- something even the euro-zone heavyweight France has not managed as of late.
A glance at financial markets, generally considered a barometer of confidence in a country's economy, also shows things have improved for ailing member states. Investors were demanding up to 7.5-percent interest on Spanish bonds in July 2012 to compensate for the perceived risk of default. That interest rate has now fallen to just below 4 percent -- which is perfectly tolerable. Portugal has also seen its interest rates plummet, falling from more than 10 percent in the summer of last year down to their current 6 percent.
Snip--------
Some four years after the euro crisis began, Ireland and Spain are set to graduate from their bailout programs, with Dublin planning to begin financing itself again early next year. It's a positive sign, but economists warn against premature optimism.
The summer of 2012 was horrific for Europe. The euro zone seemed on the verge of collapse, investors were reluctant to lend money to debt-burdened countries and interest on Spanish and Italian bonds breached the psychologically critical 7-percent mark. A €100-billion ($135-billion) emergency loan package to Spanish banks hardly calmed the tension. And things looked even worse for Greece, which seemed incapable of fulfilling the demands of its creditors. German Economy Minister Philipp Rösler voiced the idea throwing Greece out of the euro zone, but not even Germany was immune to the chaos after Moody's threatened to downgrade the country's top credit rating because of a potential spill-over effect.
That was all about 16 months ago, and the euro zone now appears to be in much better health. Finance ministers from the 17 countries that use the common currency met in Brussels on Thursday to discuss releasing Ireland and Spain from their respective bailouts.
Irish Prime Minister Enda Kenny had announced before the meeting that his country would begin raising its own money and financing itself again by late January or early February. It even passed on a just-in-case emergency credit line offered by European partners. In 2010 Ireland had accepted a €67.5-billion line of emergency credit from the European Union and International Monetary Fund after interest rates on the open market became unsustainable.
Spain, too, is expecting an end to its bailout program, which was given straight to struggling banks rather than the government. Ultimately the country's banking sector needed only €40 billion of the €100 billion offered.
Progress Being Made
Economic experts like Lars Feld say the former problem children of the euro zone are on the right path. "In Ireland there have been steps forward from the beginning," says Feld, who runs the Walter Eucken Institute in Freiburg. "Meanwhile states like Spain and Portugal are also developing happily." All three countries have made it through their recessions and registered slight economic growth -- something even the euro-zone heavyweight France has not managed as of late.
A glance at financial markets, generally considered a barometer of confidence in a country's economy, also shows things have improved for ailing member states. Investors were demanding up to 7.5-percent interest on Spanish bonds in July 2012 to compensate for the perceived risk of default. That interest rate has now fallen to just below 4 percent -- which is perfectly tolerable. Portugal has also seen its interest rates plummet, falling from more than 10 percent in the summer of last year down to their current 6 percent.
Snip--------