“The 120 billion growth pact, based on better use of structural funds and on additional capital for the EIB (European Investment Bank) is not a surprise, nor is it likely to be seen as critical,” said Jens Larson, chief European economist at RBC in London.
“But the agreement to waive seniority on EFSF/ESM loans to recapitalize Spanish banks is critical, addressing a current key market concern,” said Larson in a research note published after the deal was struck.
Larson saw progress towards a banking union but noted the establishment of a single supervisory mechanism, with the full support of the ECB, will only be considered by the end of the year by EU leaders.
“After the establishment of such a supervisor, the ESFS/ESM will be able to provide support to banks directly, without going via national governments balance sheet. That suggests that Spain’s public finances may eventually be freed of some of the burden associated with recapitalizing its financial system, and the statement also makes clear that a new deal for Ireland might be in the making,” said Larson.Page 2 of 4 | Prev Page | Next Page