Spain banking system in need of a bail-out plan, real problem still in grey zone – Part 2

The solution to the above is bail-out, undoubtedly but it itself has two-fold problem that is fending the central government and sovereign governments of the countries. First, EU wants to instil the money into the banking sector of the countries like Spain but it is not only Spain that is in the oblivion. Countries like Ireland and Greece are also in need of easing.

Injecting money into the banking sector means the European Central Bank will have a huge stack in the country’s economy, which compromises the sovereignty of the local government. Every country wants to govern its on economic system. For instance, in Ireland, a bail-out means new government as the public will never approve of someone from the outside dictating its economic system.

Moreover, the east European countries are already treading a thin line in finances and banks in the Euro Zone have signed treaty called Vienna Agreement to not to withdraw money from banks in eastern side of the continent to stall the crisis further.

For Spain the problem lies in the extent to which it is deep waters. Neither the government nor the banks have stated the true nature and extent of the deficit. Moreover, if the banks in Spain are handed over a bail-out plan, banks from Greece and Ireland will be line. They will be on the table asking for the same favour.

The deal has either to refrain Greece, Portugal and Ireland from coming back to negotiate or it has to accommodate these three countries as well.

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Posted by Usman Khalid on Jun 9 2012. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.