New York Times
June 11, 2012
Two weeks after Prime Minister Mariano Rajoy of Spain vowed “there will be no Spanish banking rescue,” and after days of delay in which Mr. Rajoy pressed European officials for sounder rescue terms, Spain has now joined Greece, Ireland and Portugal as the latest bailout recipient. Catastrophe averted? Hardly.
Bailouts — this one is worth up to $125 billion — are supposed to help restore investor confidence. But investors have clearly figured out what too many European politicians are still denying: serial bailouts, piecemeal plans and one-size-fits-all austerity are not a solution.
On Monday, Spanish and Italian borrowing costs spiked after Mr. Rajoy, the day before, had lamely tried to downplay the new bailout — calling it a line of credit — while Mario Monti, Italy’s prime minister, publicly warned of a “permanent risk of contagion.”
And the next potential calamity is just days away. On Sunday, Greek voters will go to the polls to choose a new government and, by implication, whether to stay in the euro zone. A disorderly Greek exit (it is hard to imagine an orderly one) could threaten bank stability throughout the euro zone. Some analysts are warning it could provoke a Lehman Brothers-like global financial seizure.