However, their initial enthusiasm began to fade as a result of concerns about the election in Greece on June 17th to choose a new government and, by implication, whether to stay in the euro zone. A disorderly Greek exit could threaten bank stability throughout the whole euro zone and some analysts are warning it could provoke a Lehman Brothers-like global financial seizure.
The EU has agreed to extend a bailout of up to €100 billion but the exact amount will be decided by two independent audits to be carried out over the next few days. Speaking at the European Parliament in Strasbourg, the EU's economic and monetary affairs commissioner Olli Rehn insisted that Spain would not have to implement any new austerity measures in return for receiving financial aid.
Spain urgently needed the bailout, and it may turn out to be a better package than the others. The Spanish government will be able to use the money for the sole purpose of recapitalising its banks, avoiding the onerous and counterproductive austerity conditions imposed on Greece, Ireland and Portugal. The looser terms were presented as a kind of reward for Madrid’s voluntary fiscal stringency over the past several months.
The government has been keen to stress that it is the banks that have been bailed out, not the country. But in an interview on Monday, EU competition commissioner Joaquin Almunia said there would be a troika of authorities to oversee the financial assistance, just as happened with Greece, Portugal and the Republic of Ireland.
The troika will be made up of the International Monetary Fund, the European Central Bank and the Eurogroup of eurozone finance ministers.
Spain’s troubles are rooted not in reckless government borrowing but in the bursting of a housing bubble that has devastated banks which lent too much for too long.
The bailout gives the European Union the authority to monitor the bailed-out banks and a greater voice in structural reforms, including loosening the tight links between local politicians and local banks, something that financial observers have been urging for a long time. Meanwhile, a remark made by IMF Managing Director Christine Lagarde in an interview with CNN's Christiane Amanpour gave the financial markets the jitters on Tuesday.
When Amanpour asked her if she agreed with the forecasts of financial tycoon George Soros who said that Europe has three months to save the euro, Lagarde replied that if further interventions became necessary, they should be taken "more shortly than three months".
She quickly clarified the remark: "I'm not fixing a set term by which the whole situation has to be settled.
The construction of the eurozone has taken time," Lagarde said. "And it's a work in construction at the moment. It must be improved, modified and reinforced in the course of time. Markets think that it is happening too slowly and this is the message that was obviously conveyed".