Today in Europe

Economist
May 30, 2012

The battle for the euro zone is a multi-front endeavour. For much of the past few weeks, the Greek front has been the more disconcerting. Fears have flourished over whether new June elections will produce a Greek government too hard-headed to come to terms with (just-as-hard-headed) German officials over whether and how to modify Greece's latest bail-out deal, leading to a potential Greek exit. But over the past few days, attention has shifted to a deteriorating situation in Spain.

Spanish banks have been hammered by the country's property-market collapse, and matters have come to a head over the past week thanks to troubles at Bankia. Fears of deposit flight and a tumbling share price forced the Spanish government to plan for a bail-out. The handling of rescue announcements has been badly bungled, however. Rumours circulated that Spain would recapitalise Bankia by giving it government bonds which could then be pledged at the European Central Bank. The ECB was then said to oppose this idea, but the central bank later insisted that it had not been consulted on any recapitalisation plan. Spanish authorities, for their part, clarified that they would recapitalise the bank by selling new €19 billion in new government debt.

More