Euro Rises on Spanish Bailout Request Hopes

Arthi Gupta
21 Sep, 2012
New York City

The European indexes advanced on speculation that Spain is nearing a bailout request. Italy estimated contraction to deepen to 2.4% this year. Greece failed to reach an agreement with its coalition partners on spending cuts demanded by the troika.

[R]2:45 PM Frankfurt – The European indexes advanced on speculation that Spain is nearing a bailout request. Italy estimated contraction to deepen to 2.4% this year. Greece failed to reach an agreement with its coalition partners on spending cuts demanded by the troika.[/R]

European indexes edged higher on the rising speculation that the Spain is near finalizing the request for a larger bailout and Italy deepened its estimate of economic contraction. Yields of bonds Spain and Italy turned lower.

Italy deepened its estimate of economic contraction to 2.4% this year from the 1.2% contraction projected in April and increased its prediction for budget deficit this year to 2.6% of GDP from 1.7% forecasted in April.

Also, the Italian Prime Minister Mario Monti is scheduled to meet Spanish Prime Minister Mariano Rajoy in Rome today.

There is growing speculation in the market that Spain is preparing a draft for a bailout as several regional governments struggle with falling revenues and battle with deficits.

Several local reports in Madrid estimated Spanish Finance Minister Luis de Guindos and the European Commission are in talks to finalize terms and conditions for a bailout as early as September 27. The bailout plan focuses on structural reforms than new taxes and spending cuts.

Greek Prime Minister Antonis Samaras and coalition partners failed to agree on €11.5 billion spending cuts necessary to get the next tranche of the bailout from the troika.

Greek finance ministry estimated that around €6.5 billion will come from reductions in salaries, pensions and bonuses and about €1 billion from lifting the retirement age to 67 from 65, which would together contribute a saving of €9.5 billion.

Several unions plan to hold a 24-hour strike next week.

In Paris trading, the CAC-40 Index gained 9.36 or 0.3% to 3,519.28 and in Frankfurt the DAX Index edged higher 55.14 or 0.8% to 7,444.74.

For the week, the CAC-40 Index fell 1.7% and the DAX Index surged 21.2%.

The yields on Spain’s benchmark 10-year fell 4 basis points to 5.73%. Italian 10-year yields fell 3 basis points to 4.96%.