Jew World Order

MADRID/LONDON — Spain weathered funding pressures in European credit markets on Thursday and managed to raise money at an affordable if rising cost, while behind-the-scenes planning for a likely rescue of its debt-stricken banks intensified.

Madrid sold 2.1 billion euros ($2.6 billion) of government bonds, paying just over 6 percent to sell 10-year debt, up from 5.74 percent last month. That laid to rest – at least for now – fears raised by Treasury Minister Cristobal Montoro on Tuesday that Spain was being shut out of credit markets.

Despite a rally in stocks, bonds and the euro owing partly to expectations of action by central banks to revive economic growth, the euro zone remains under pressure from investors and global partners to act decisively – and quickly – to resolve its debt crisis.

While Greece is a major concern, the most immediate threat comes from Spain, where the banking sector is saddled with bad property loans and may need 40 billion euros of new capital as a bare minimum to shore it up.

“Talk of a rescue for Spanish banks is the thing that is reducing risk aversion in the markets,” said Alessandro Giansanti, a bond strategist with ING bank in Amsterdam, who added that such talk had improved the environment for Spanish bonds.

France, the euro zone’s number two economy after Germany, continued to benefit from its safe-haven status, selling 7.84 billion euros of bonds at record low yields despite announcing a partial reversal of the previous government’s pension reform on Wednesday that runs counter to EU policies.

U.S. President Barack Obama and Canadian and Japanese leaders telephoned Europe’s main leaders this week to express concern at the worsening crisis and press for stronger action – ratcheting up hopes ahead of an EU summit on June 28-29.

But German Chancellor Angela Merkel doused expectations that the summit will produce a major breakthrough towards a tighter fiscal and banking union in the 17-nation currency bloc, saying progress would take longer.

In a television interview broadcast on Thursday, she said the euro area was moving inevitably towards a political union ceding more national sovereignty, and that would lead to more of a two-speed Europe, with non-euro states in the slow lane.

“I don’t believe that there will be one single summit that will decide on a big bang,” Merkel told ARD. “But what we have been doing for some time, and on which a working plan will certainly be presented in June, is to say we need more Europe.”

“Whoever is in a currency union will have to move closer together. We have to be open to make it possible for everyone to participate. But we cannot stand still because some do not want to go with us,” she said.

Most EU officials see the process of integration taking five-10 years at best, a timescale much longer than the view of the markets, although economists also argue that agreeing steps towards closer union will itself help boost market sentiment.

Rift with Britain

As the EU’s biggest economy and largest contributor, Germany holds the key to how the bloc comes to Spain’s rescue, and whether Europe is able to agree on a banking union with a joint deposit guarantee and a bank resolution fund, as envisaged by the European Central Bank and the European Commission.

Merkel’s remarks underscored a growing rift with non-euro member Britain, a longstanding brake on European integration, which said bluntly on Thursday that it would not take any part in a euro zone banking union.

Chancellor of the Exchequer (finance minister) George Osborne told BBC radio: “There is no way that Britain is going to be part of any euro zone banking union.

“I think Britain will require certain safeguards if there is a full-blown banking union.” His comments highlighted the potential complexity of EU negotiations on the issue, since London is the euro zone’s main financial centre.

Osborne urged the euro zone to use its bailout fund to recapitalise Spain’s troubled banks, which are reeling from bad debts left from the bursting of a property bubble, aggravated by a deep recession and unemployment approaching 25 percent.

Spain says it is awaiting the outcome of an International Monetary Fund report on its banking sector and an independent audit of its banks’ capital needs before deciding on any recourse to Europe to help recapitalise them.

The IMF report goes before the global lender’s board on Friday and will be issued on Monday, raising expectations that EU and Spanish officials may have the outlines of a possible rescue plan worked out when the numbers are released.

One senior EU official indicated that Spain could take a “minimalist” approach to recapitalising the banks, requiring 30-40 billion euros for four or five institutions, or else a “maximalist” line which might need as much as 100 billion.

“Politicians tend to prefer doing the least that’s required, so in the case of Spain, it seems likely that a minimalist approach will be taken,” the official said.

Spain has so far made no application for European aid, and officials say it is determined to avoid the kind of humiliating policy conditions and intrusive quarterly EU/IMF inspections imposed on Greece, Ireland and Portugal.

Among details that officials in Berlin and Brussels say are unclear is whether Madrid would receive money from the temporary EFSF rescue fund or from the future permanent European Stability Mechanism, which has less rigid rules but only comes into force sometime in July.

While a rescue loan may be presented for political reasons as going to Spain’s FROB bank resolution fund, legally European bodies can only lend to the state, EU officials say. That raises the question of what policy conditions and monitoring would be attached to any assistance.

Under the rules of the EFSF, a 440 billion euro fund set up in May 2010 and so far used to bail out Ireland and Portugal, countries can receive aid for their banks without having to submit to the same strict ‘conditionality’ as under a full bailout programme, but it remains unclear whether Spain would accept that and whether it can meet all the requirements.

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