Rescue loans for Spain's banks buys Europe time

By Peter Svensson

Associated Press

Published: Sunday, June 10 2012 3:44 p.m. MDT

"Anything that calms European markets is good for the United States," says Tufts' Drezner.

And anything good for the U.S. and world economies is good for President Barack Obama's re-election hopes.

"This move will come as a relief to the Obama administration as it suggests that European leaders are finally beginning to take significant actions to ease the intensifying pressure on the euro zone's peripheral economies" such as Spain and Portugal, says Cornell's Prasad.

The Spanish deal also gives European policymakers more time to strengthen the euro 10 years after the single currency was introduced. They are already planning to create a "banking union" with a centralized regulator, a bailout fund and deposit insurance that covers savers across Europe.

Europe still needs to find a way to stimulate economic growth across the continent so that European countries can begin to grow their way out of their debt problems.

Despite the bank deal, Spain's grinding economic misery will get worse this year, Prime Minister said Sunday. "This year is going to be a bad one," Rajoy said Sunday in his first public comments about the rescue.

The conservative prime minister added that the economy, stuck in its second recession in three years, will still shrink by 1.7 percent this year, even with the help. More Spaniards will lose their jobs, he said.

Analysts also say the eurozone countries must pull closer together politically and economically. They need to agree to more standardized policies limiting government debts and strengthening bank regulation.

Critics complain that the Spanish plan, like an Irish rescue before it, rescues banks but leaves taxpayers responsible for repaying the bailout loan.

Bruegel's Veron says bank owners and investors should absorb some of the losses when banks run into trouble. He wants to see Europe develop a more standardized way of dealing with shaky banks and closing them down when necessary.

Michael McGrath, a spokesman for the Irish opposition political party Fianna Fail, expressed dismay that Saturday's bank plan would leave Spain's government holding more debt and reinforce the idea "that ordinary citizens have to carry bank losses."

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Svensson contributed from New York and AP Business Writer Sarah DiLorenzo contributed to this report from Paris.

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