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The Euro and stock markets have boosted in Asia after a deal to shore up Spain’s troubled banks eased concerns about a European currency break up.
In Asian trade, the euro rose 1% versus the US dollar and Japanese yen. Stock indexes in Japan and Hong Kong rose 2%.
On Saturday, eurozone ministers agreed to lend Spain up to 100 billion Euros ($125 billion) to help its banks.
Analysts said the deal would buy time for policymakers to solve other problems facing the 17-nation eurozone.
The biggest issue now looming on the horizon is the 17 June elections in Greece, and the worry that an anti-eurozone party may end up in a position of power.
“All eyes are still on Greece’s upcoming elections but investors’ worries over the eurozone have eased in the short term,” said Andy Du of Orient Futures Derivatives.
According to Stephen Davies of Javelin Wealth Management, the fact that the Spanish banking bailout was bigger than many people had expected pointed to a continuing “degree of strain within the European banking system”.
The Euro and stock markets have boosted in Asia after a deal to shore up Spain's troubled banks eased concerns about a European currency break up
“It reflects the fairly dire straits within which Europe continues to find itself,” he added.
Spain’s weakest banks were left with billions of Euros of bad loans following the collapse of a property boom and the recession that followed.
Currently Spain is in its second recession in three years and the economy is expected to shrink by 1.7% this year.
Its economic problems have become so acute, and its borrowing costs in the international markets so high, that there have been concerns that the government would not be able to service its debts.
At the same time, there were fears that some of its banks would not be able to find enough capital to continue to operate.
The exact amount of emergency funding that Spain will receive will be decided after two audits of its banks are completed within the next few days.
Spain’s loan was welcomed by the International Monetary Fund (IMF) as well as the US and Japan.
Spanish Prime Minister Mariano Rajoy hailed the decision as a victory for the single currency.
European Union economic affairs commissioner Olli Rehn said the deal was a clear signal to the markets that the euro area was ready to take decisive action to calm markets and contain contagion.
Spain is the eurozone’s fourth-biggest economy – twice the size combined of those of Greece, Ireland and Portugal, the countries bailed out so far.
However, tensions over the euro remain high with another election to be held in Greece next weekend.
If voters elect a government that refuses to abide by the terms of the country’s bailout deal, Athens faces a possible exit from the bloc.
Analysts said that in the days leading up to the election it was likely that a low-risk appetite from investors would return.
There are fears that a Greek exit could trigger a run on the banks, not only there but in other eurozone countries.
Greece has been in recession for five years, crippled by huge debts, high unemployment and labor unrest.
Eurozone finance ministers are to hold a conference call to discuss a bailout for Spanish banks.
EU sources say Madrid could formally request financial assistance for its troubled banks this weekend.
So far Spain has denied reports that an announcement on a European rescue plan for its banks is close.
The International Monetary Fund (IMF) is estimating that Spain’s banks need a cash injection of at least 40 billion Euros ($50 billion).
The IMF said on Friday that a “stress test” showed Spain’s financial sector was well managed but “vulnerable”.
The eurozone finance ministers’ conference call is expected early on Saturday afternoon.
In an interview on Portuguese radio, European Central Bank Vice-President Vitor Constancio said: “It is expected that Spain will formulate a request for aid exclusively for banks recapitalization.
“There has to be an expression of will to have such a programme for Spanish banks, and one may hope it happens rather swiftly.”
Eurozone finance ministers are to hold a conference call to discuss a bailout for Spanish banks
Spain is under pressure from Brussels to act, possibly before the feared uncertainty that could follow next weekend’s Greek elections.
However on Saturday morning, the Spanish government restated its position that it does not need outside help to shore up its banks.
“There has been no change,” a spokeswoman from the economy ministry in Madrid told AFP news agency.
Spanish Prime Minister Prime Minister Mariano Rajoy has insisted that any decision will come after the results of an independent audit on the Spanish banking system, which are due out within two weeks.
The audit will produce a figure of how much money, in total, is needed to prop-up Spain’s banks.
A rescue deal would see money passed first to the Spanish government and then to the troubled banks.
Because Madrid has already announced tough financial reforms it is likely that a deal would only carry limited conditions, our correspondent says, unlike the full-blown bailouts for Greece, Portugal and Ireland.
Reuters reported that eurozone deputy finance ministers would first hold a conference call on Saturday morning to discuss a Spanish request for aid.
The Eurogroup of finance ministers would then discuss the issue on another conference call, the news agency said, citing unnamed EU and German officials.
A downgrade of Spain’s creditworthiness by rating agency Fitch earlier this week has been seen by some as adding to the urgency of shoring up Spain’s finances.
European leaders have to make difficult decisions to steer the eurozone away from crisis, US President Obama said on Friday.
He said the US would support Europe as it implemented the hard solutions needed to solve the ongoing debt crisis.
He said a deep new recession in Europe would have an impact on the US economy.
Greece’s future in the eurozone was a matter for the Greek people, he said, but “further hardship” must be expected if the country chose to leave the euro.
Greeks will go to the polls on 17 June to try and end a political impasse that eurozone leaders say is harming Greece’s ability to tackle its economic crisis.
US President Barack Obama says European leaders must make difficult decisions to steer the eurozone away from crisis.
Speaking at the White House, Barack Obama said the US would support Europe implement the hard solutions needed to solve the ongoing debt crisis.
He said a deep new recession in Europe would have an impact on the US economy.
Greece’s future in the eurozone was a matter for the Greek people, he said, but “further hardship” must be expected if it choose to leave the euro.
Barack Obama says European leaders must make difficult decisions to steer the eurozone away from crisis
Outlining a series of “specific steps” Europe needed to take to ensure stability within the eurozone, the president was at pains to say he would not “scold” Europe.
Barack Obama said European leaders needed to stabilize the continent’s financial system and inject capital into weak banks “as soon as possible”.
“The solutions are hard, but there are solutions,” Barack Obama said, saying the US was offering advice, but that “these decisions are fundamentally in the hands of Europe’s leaders”.
Barack Obama also reprised his calls for the US Congress to pass the remaining parts of his own jobs plan, in order to strengthen the US economy against possible shocks from Europe.
European markets have risen after a weekend poll in Greece showed growing support for a pro-austerity conservative party.
The survey suggested the New Democracy party could gain about a quarter of the votes, leaving it as the biggest party, albeit without overall control.
Elections are due to be held on 17 June.
London, Paris and Frankfurt stock markets all rose at least 1%.
European markets have risen after a weekend poll in Greece showed growing support for a pro-austerity conservative party
Spain’s leading IBEX index was out of step with the rest of Europe, falling by 0.5%.
Spain’s Bankia, which late on Friday asked for an injection of 19 billion Euros ($24 billion) in state support, fell 27% as it resumed trading on Monday. Its shares had been suspended on Friday pending the funding request.
Meanwhile, bond markets continued to reflect the tensions in the eurozone with the difference between the premium investors demand to hold Spanish government bonds and that of their German counterparts, at a record high.
The spread between 10-year Spanish and German bonds rose to 5.05 percentage points after Spanish government bond yields rose to 6.43%.
Italian government bond yields also ticked higher, rising to 5.87%.
London’s FTSE 100 share index was up 1%, Frankfurt’s DAX up 1.2% and Paris’s CAC 40 was up by 1.1%.
Although both Germany and France have a public holiday on Monday, their equity markets remain open.
Trading in shares in Bankia, Spain’s fourth-largest bank, has been suspended in Madrid.
Bankia asked them to be suspended ahead of a board meeting this afternoon to reformulate its accounts for 2011 and submit a plan to shore up its finances.
The bank is reported to be due to ask the government for a bailout of more than 15 billion Euros ($19 billion).
Bankia, which is Spain’s fourth-largest bank, was part-nationalized two weeks ago because of its problems with bad property debt.
Bankia, which is Spain's fourth-largest bank, was part-nationalized two weeks ago because of its problems with bad property debt
Any extra government money would be on top of the 4.5 billion Euros in state loans that the government converted into shares in the group in the part-nationalization process.
Shares in Bankia’s parent company Banco Financiero y de Ahorros (BFA) have also been suspended.
Bankia had to reassure its savers last week that their money was safe after a Spanish newspaper reported a run on the bank.
Bankia was created in 2010 from the merger of seven struggling regional savings banks. It holds 32 billion Euros in distressed property assets.
Spain’s economy minister Luis de Guindos said on Wednesday that the government would pump at least 9 billion Euros into Bankia but that more would be available if it was needed.
There have been four attempts by Spanish governments to shore up the banking system since the global banking crisis of 2008.
As part of the latest plan, lenders are having to make 30 billion Euros of extra provisions to cover potential losses on property loans, which comes on top of 54 billion Euros they were ordered to set aside in February.
The health of Spain’s banking system is key to whether the country eventually needs to seek a bailout itself from the eurozone and the International Monetary Fund.
But Professor Santiago Carbo Valverde of the University of Grenada, said he thinks Spain’s other large banks are not in as difficult a situation as Bankia.
“Bankia has huge exposure to real estate and bad loans, much larger than other banks.
“Other banks may have trouble as the government is demanding more capital, but I don’t think we will have another big case like Bankia.
“The three largest ones are in better shape as they have lower exposure to bad loans and they are more internationally diversified.”
Spain’s credit rating was downgraded by Standard & Poor’s last month on the basis that it would probably have to take on more debt to support its banks.
Its shares fell 7.4% on Thursday to close at 1.57 Euros, which is 58% down from their listing price in July 2011.
Bankia history
• Formed in December 2010 from merger of seven troubled banks
• Most toxic assets moved into holding company BFA
• Listed on the Madrid stock exchange in July 2011
• Chairman Rodrigo Rato resigned earlier in the month before Bankia was part-nationalized
European Council President Herman Van Rompuy has announced that EU leaders want Greece to remain in the eurozone but to “respect its commitments”.
Herman Van Rompuy, speaking at an informal EU summit, said continuing “vital reforms” were essential for Greece to overcome its economic problems.
The eurozone crisis has overshadowed the talks, amid fears that Greece may have to exit the single currency.
The eurozone is said to be preparing for such a scenario.
“We want Greece to remain in the euro area while respecting its commitments,” Herman Van Rompuy told a news conference in Brussels.
“We are fully aware of the significant efforts already made by the Greek citizens.
“The eurozone has shown considerable solidarity having already disbursed, together with the IMF (International Monetary Fund) nearly 150 billion Euros in support of Greece since 2010.”
European Council President Herman Van Rompuy has announced that EU leaders want Greece to remain in the eurozone but to "respect its commitments"
He said the EU would take action to return Greece to economic growth and job creation.
But Herman Van Rompuy said “continuing vital reforms” were “the best guarantee for a more prosperous future in the euro area”.
Referring to Greece’s forthcoming elections in June he said: “We expect that after the elections the new Greek government will make that choice.”
On Wednesday, European stock markets fell about 2% amid anxiety that Greece might have to exit the euro.
herman Van Rompuy said talks had been “focused and frank”.
He said there was agreement on the need for economic growth as well as measures to restore financial stability, which he described as “two sides of the same coin”.
UK Prime Minister David Cameron emphasized the agreements that EU leaders had reached on Wednesday.
“It was a good meeting in that there was complete agreement that dealing with deficits and getting growth are not alternatives, they go together. You need to do one in order to get the other,” David Cameron said.
Greece’s caretaker Prime Minister Panagiotis Pikrammenos said he had “had the support from almost every country member”.
EU leaders began the summit with Germany resisting pressure to launch eurobonds as a way to ease the eurozone crisis.
German Chancellor Angela Merkel said the bonds, pooling eurozone debt, would violate EU treaties and would “not contribute to kick-starting growth”.
France’s President Francois Hollande said that he wanted discussion of eurobonds and Irish PM Enda Kenny said the idea would be on the table.
Earlier, Angela Merkel said talks would not result in decisions but would influence formal summit talks in late June.
The leaders would look at ways to deepen the EU internal market, boost mobility in Europe’s labor market and better target European Investment Bank funding for projects. Such measures could help stimulate growth, she said.
The summit has been the first opportunity for President Francois Hollande to shift the emphasis from austerity to growth – a key message he gave to French voters, who elected him on 6 May.
The French Socialist leader’s victory is seen as a challenge to the prevailing austerity drive in the EU, which is favored by Germany.
G8 leaders of the world’s most powerful economies say they want debt-stricken Greece to remain in the eurozone.
In their summit communique, G8 leaders also committed themselves to promoting growth alongside fiscal responsibility.
However, the leaders acknowledged “the right measures are not the same for each of us”.
Greece’s possible exit from the eurozone was high on the agenda, following inconclusive elections there.
The leaders of France, Germany, the US, the UK, Italy, Japan, Canada and Russia have been meeting at Camp David in the US state of Maryland.
“We agree on the importance of a strong and cohesive eurozone for global stability and recovery, and we affirm our interest in Greece remaining in the eurozone while respecting its commitments,” the statement said.
The global economic recovery was showing signs of progress, they said, but “significant headwinds persist”.
G8 leaders are divided on whether to continue with austerity or back stimulus measures instead.
German Chancellor Angela Merkel favors austerity, while newly elected French President Francois Hollande wants to pursue policies for greater growth, as does President Barack Obama.
G8 leaders of the world's most powerful economies say they want debt-stricken Greece to remain in the eurozone
There are caveats but the first line of the communique – about promoting growth and jobs – means Presidents Obama and Hollande have won the day.
However, it is not clear that Angela Merkel has got their message and is prepared to act on it, our correspondent adds.
US officials said Angela Merkel would hold a one-on-one meeting with Barack Obama later on Saturday.
Italian Prime Minister Mario Monti said there would be another key meeting in June in Rome, where he would host Francois Hollande and Angela Merkel.
Earlier, UK Prime Minister David Cameron called for deficit reduction.
“There is a growing sense of urgency that action needs to be taken, contingency plans need to be put in place and the strengthening of banks, governments, firewalls and all of those things need to take place very fast,” he told reporters at Camp David.
The likelihood of Greece leaving the euro is growing.
The office of the Greek interim prime minister said on Friday that Angela Merkel had suggested the country hold a referendum on euro membership on election day, but the German chancellor’s cabinet dismissed this as “false”.
Greek voters will again go to the polls on 17 June after earlier elections failed to produce a viable coalition to run the country.
A caretaker government was sworn in this week after elections.
Investors fear any refusal by Athens to impose deep spending cuts agreed under a bailout deal could result in the country quitting the bloc of 17 countries that use the euro.
Two opinion polls published on Saturday showed the anti-bailout left-wing Syriza bloc neck and neck with centre-right New Democracy, both on about 25%.
Larger countries such as Spain or Italy struggling to ease their debt loads might then become vulnerable, potentially triggering wider eurozone upheaval and even a global financial crisis to rival the one of 2008.
The G8 summit has now moved on to other issues, including food security, energy and climate, partnerships in North Africa and the Middle East and the war in Afghanistan.
After the G8 summit ends on Saturday evening, most of the leaders will decamp to Chicago to join a larger group of international officials for a NATO summit on Sunday and Monday, at which Afghanistan is expected to be the main item on the agenda.
Three men arrested in Chicago on suspicion of planning to throw petrol bombs at the NATO summit have been charged with conspiracy to commit terrorism and possession of an explosive or incendiary device.
Prosecutor Anita Alvarez said the campaign headquarters of President Barack Obama and the home of mayor Rahm Emanuel were among the targets.
Greece has set the new election date on 17 June and a judge has been appointed to head an interim government.
Council of State president Panagiotis Pikramenos will head the caretaker government until the election.
The election date was announced after party leaders met Greek President Karolos Papoulias on Wednesday.
Final talks to form a coalition failed on Tuesday, raising new concerns over Greece’s eurozone future. No party won a majority in the 6 May election.
There has been deadlock since the election over whether to continue with the austerity measures required by an international bailout agreement.
The uncertainty pushed the euro to a new four-month low against the dollar.
EU officials fear Greece will elect an anti-bailout government, which could trigger a Greek exit from the euro. That possibility is now discussed openly among Europe’s leaders.
But a senior adviser to European Council President Herman Van Rompuy played down that possibility on Wednesday.
Greece has set the new election date on 17 June and a judge has been appointed to head an interim government
On Wednesday the eurozone crisis pushed Asian stocks lower and knocked oil prices.
Tokyo’s Nikkei index dropped 1%, while Hong Kong’s Hang Seng and South Korea’s KOSPI lost about 3%.
The euro fell more than half a cent to $1.27.
Meanwhile the borrowing costs for Spain and Italy rose again, with Spanish bond yields hitting 6.5% and Italy’s 6.1%.
The uncertainty over the euro has also sparked concern over a run on the banks in Greece.
Greek newspapers report that around 700 million Euros ($897 million) has been withdrawn from high street banks over the past few days.
People are concerned that an exit from the eurozone and a reversion to the drachma would wipe out much of their savings, he says.
European leaders say they will cut off funding for Greece if it rejects the bailout agreed in March.
This would mean effective bankruptcy for Greece and its all but certain exit from the euro, analysts say.
German Finance Minister Wolfgang Schaeuble stressed again on Wednesday that there would be no new discussions on Greece’s bailout.
The head of the International Monetary Fund, Christine Lagarde, has raised the possibility of orchestrating an “orderly exit” for Greece from the eurozone.
“It is something that would be extremely expensive and would pose great risks, but it is part of options that we must technically consider,” she said on Tuesday.
After talks in Berlin with German Chancellor Angela Merkel following his inauguration as French president, Francois Hollande said he wanted Greece to remain in the euro.
Opinion polls suggest Greece’s leftist Syriza bloc, which came second in the 6 May vote and rejects all further cutbacks, could become the largest party after a new election.
Syriza wants to renegotiate the bailout package but also wants to keep Greece in the euro.
Pasok and New Democracy, which signed up to the bailouts and had previously dominated Greek politics for decades, saw their combined share of the vote drop from about 77% to about 33% on 6 May.
On Tuesday, Greece said it would make a “timely payment” on 435 million Euros’ worth of debt due on 15 May.
The German economy returns to growth in the first quarter of 2012 with a better-than-expected 0.5% rise in GDP, official figures have shown.
In Q4 2011, the German economy contracted by 0.2%, its first dip since 2009.
Meanwhile, the French economy recorded zero growth in the first quarter, after growth of 0.1% at the end of 2011.
Figures released later on Tuesday are expected to show that the eurozone as a whole has returned to recession.
Data also showed that the Italian economy fell deeper into recession after contracting by 0.8% in the first quarter, slightly worse than analysts had expected. The economy shrank by 0.7% in the previous quarter.
Compared with the same a quarter a year earlier, the German economy grew by 1.7%.
The German economy returns to growth in the first quarter of 2012 with a better-than-expected 0.5 percent rise in GDP
The German statistics agency Destatis said growth was due to a rise in exports and higher domestic consumption.
The return to growth means Germany has avoided a so-called double-dip recession, confounding the predictions of a number of commentators.
In contrast, the French growth figures failed to outperform analysts’ expectations, and the growth figure for the final quarter of last year was revised down to 0.1% from 0.2%.
“There was no good surprise,” said Philippe Waechter at Natixis Asset Management.
“There was weak consumption [and] no investment.”
The French GDP figures come on the day of the inauguration of the new French President Francois Hollande, who has vowed to boost economic growth.
In the run up to the presidential election, in which he ousted Nicolas Sarkozy, he campaigned hard for measures focusing on stimulating the economy alongside the austerity measures that have been adopted across the eurozone.
He will visit German Chancellor Angela Merkel later on Tuesday to make the case for growth.
Francois Hollande believes that growth rather than austerity is the best way for governments to reduce their debts, a view that is being discussed more widely as the eurozone economy continues to struggle and increasing numbers of Europeans voice their anger at austerity.
The eurozone economy contracted by 0.3% in the final quarter of last year, and many analysts believe growth figures published later this morning will show further contraction in the first quarter of this year. If they are correct, the eurozone will be back in recession.
Greek moderate Democratic Left party says it will not join pro-bailout parties in a coalition without the more radical far left Syriza.
The Greek president has called the four main parties, including the centre-right New Democracy and the Socialist Pasok, to try to form an emergency government to avoid new elections.
But Syriza said it would not attend because it could not back any coalition which supported austerity.
A majority voted against last week.
Greek moderate Democratic Left party says it will not join pro-bailout parties in a coalition without the more radical far left Syriza
EU finance ministers are due to meet in Brussels to discuss the Greek crisis later on Monday.
The fear over holding new elections is that parties that oppose austerity measures that are a condition of Greece’s bailout deal might do well again in new polls.
And with no sign Europe’s leaders are prepared to renegotiate the deal, Greece could end up leaving the eurozone.
For the first time, some central bankers have spoken openly about the consequences of a Greek exit from the single currency.
Greek main parties have suffered dramatic losses in the parliamentary election, according to exit polls.
The latest polls put centre-right New Democracy in the lead with 19-20.5% of the vote, down from 33.5% in 2009.
Centre-left Pasok is put in third place with 13-14%, down from 43.9%. Syriza, a left-wing coalition, is put ahead of it in second place with 15.5-17%.
Pasok and New Democracy, in coalition since last November, were expected to lose support to anti-austerity parties.
There is widespread anger across Greece to harsh measures imposed by the government in return for international bailouts.
Syriza opposes the government’s austerity measures.
The neo-Nazi Golden Dawn party could enter parliament for the first time if the exit poll prediction of it winning 6.5 -7.5% of the vote comes to fruition.
Greek main parties have suffered dramatic losses in the parliamentary election, according to exit polls
The first official results are expected later on Sunday night.
“The truth is here – the reality of this result is that at the moment this produces no government,” said Theodoros Pangalos, outgoing deputy prime minister and senior Pasok official.
“It is not a question at the moment of who gets a little more or a little less.”
If no party wins enough votes to form a government, the winner will have to seek a coalition with rivals.
Coalition negotiations can take place over three days. If they fail, the party in second place can try to form a coalition, and if still unsuccessful, the third party will receive the mandate.
If still no coalition emerges, Greece will go to another election – a prospect which would alarm Greece’s international creditors.
The ability of any new government to carry on with the austerity programme will be crucial for Greece’s continued access to bailout funds from the EU, the European Central Bank and the International Monetary Fund – the so-called Troika.
Any political instability may prompt fresh questions over the country’s place in the eurozone.
Under the current plan, a further 11 billion Euros of savings in spending are due to be found in June.
Othan Anastasakis, director of south-east European studies at Oxford University, said it would be “incredible” if no party won more than 20% of the vote.
“This is really unprecedented,” he said.
“The whole landscape becomes even more unpredictable after the election. We don’t know if there will be a coalition or how long it will survive. I don’t see it surviving very long.
“Greeks are sending a very strong message abroad, which is <<enough with austerity>>.”
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