Relief at Spanish bailout likely to boost markets

 

Politicians, shareholders, traders and consumers across the world will have their eyes trained on the markets today, in the hope that Spain's request for a €100bn banking bailout over the weekend will restore credibility to the country's banks and boost shares in the UK, Europe, the US and Asia.

Analysts were expecting markets to receive the traditional "bump" in their fortunes today as relief that disaster has been averted – at least in the short term – translates into rising share prices.

Furthermore investors, most of whom desperately want to believe that the mooted rescue package might be enough for the eurozone to turn a corner, were given the assurance they wanted that everything was going to be ok by leading economic heavyweights yesterday.

Christine Lagarde, managing director of the International Monetary Fund, said: "I strongly welcome the statement [which should provide] the assurance that the financing needsof Spain's banking system will befully met."

Timothy Geithner, US Treasury Secretary, welcomed the move as "important for the health of Spain's economy and as a concrete step on the path to financial union, which is vital to the resilience of the euro."

France's Finance Minister, Pierre Moscovici, added that the deal would "contribute to restoring confidence in the eurozone".

However, while previous bailouts have typically boosted the shares, it is often not long before they tumble again, as investors realise that their hopes were misplaced and that far more cash is needed.

Plenty of analysts are already asking whether €100bn is anything like enough to solve Spain's problems, while many investors are focusing on where the contagion may spread next, with Italy being high on the list.

Against this backdrop, any post-bailout share price rise is likely to be even shorter-lived than usual.

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