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Markets Rally On News Of Spanish Bailout

  • RFE/RL

Spanish traders talk near electronic trading boards at the stock exchange in Madrid.

Spanish traders talk near electronic trading boards at the stock exchange in Madrid.

Stock market indices, oil prices, and the value of the euro currency have all risen following the announcement of a 100 billion-euro ($125 billion) deal to shore up Spain's ailing banks.

The rallies are the first market reactions since finance ministers from the 17 eurozone countries offered the loan package to Spain during the weekend, and Madrid acknowledged it would require outside assistance for its banks.

European stock markets rallied sharply upon opening on June 11 as investors welcomed the news.

Share price indices in London, Frankfurt, and Paris all rose by around 2 percent in early trading. Madrid's IBEX 35 index soared by nearly 6 percent shortly after the opening bell.

Stock market indices in Japan, South Korea, Hong Kong, and elsewhere in Asia also saw gains of around 2 percent on June 11.

Oil prices in Asia and Europe also jumped by about $2 per barrel, while the euro strengthened against the dollar from $1.25 to $1.26.

European Commissioner for Economy and Monetary Affairs Olli Rehn welcomed the bailout package for Spanish banks as a way to prevent a wider economic crisis from spreading across the eurozone.

"I am confident that this will send a strong signal to the markets that the euro area is ready to support Spain in its efforts to restructure and recapitalize its banking sector," Rehn said.

"This is important in order to ensure that credit can flow to companies and households in Spain and that we can contain the contagion which otherwise would be a possibility."

Greece Vote Looms

But European declarations about overcoming the debt crisis have been heard before in recent years, and financial analysts warn that the latest market gains could be short-lived.

Analysts point to the June 17 elections in debt-hobbled Greece, where voters angered by tough austerity measures are expected to support candidates calling for the country to quit using the euro.

Rehn warned about the threat posed by opponents of austerity in Greece.

"It is important that we all face this critical situation with a very strong degree of responsibility both in Europe in general, especially in Greece, and we try to avoid any unnecessary turbulence which will be harmful both for Greece and for Europe," he said.

In Greece's inconclusive elections last month, many voters turned away from the two traditional parties -- the conservative New Democracy and the socialist PASOK.

This has resulted in more support for more radical parties that vow to renounce earlier austerity pledges made by Athens in order to secure a bailout.

If those bailout terms are renounced, Greece's international partners could stop providing the rescue loans upon which the country depends.

That could lead to a default and force Greece out of the eurozone -- a development that could greatly weaken the euro and send shockwaves across the global financial system.

Voters in France also have signaled opposition to painful austerity cuts by electing Socialist Francois Hollande as president last month and giving strong support to his allies in the June 10 parliamentary elections.

If a second-round vote on June 17 gives the Socialists and their allies a clear majority in the French parliament, Hollande would be able to push through reforms aimed at stimulating growth and avoiding austerity measures imposed elsewhere in the eurozone.

Analysts say it also would likely mark an end to the French-German alliance that has guided eurozone policy through the economic crisis in recent years.

With reporting by Reuters, AP, and AFP
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