European officials are considering another stop-gap measure to contain the continent’s fiscal crisis. On the table is a bailout package for Spanish banks that would be smaller in scale that those used to rescue Greece, Portugal and Ireland and also come “very limited conditionality” on Madrid’s handling of the country’s economy and financial affairs, the Financial Times reports. Spain’s budget minister estimates that $64 billion are required to recapitalize its banks, a sum he calls “not astronomical.” Others, however, have said it might take more than twice that much to restore stability to the Spanish financial system.
A limited bailout would stop short of the the kind of bold measures, such as forming a banking union or establishing eurobonds, that some say are needed to defuse Europe’s crisis.
As things unravel in the Old Continent, Federal Reserve Chairman Ben Bernanke told the Wall Street Journal on Thursday all options are on the table ahead of a planned Fed meeting on June 19-20. He said the Fed is “prepared to take action” to “insure against adverse shocks.” Noting the troubles across the pond, he added: “the situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely.”
Meanwhile, China cut its interest rate this morning, for the first time since 2008, in an effort to avert a slowdown of its own economy.
“This will be the beginning of a rate cut cycle and there will be at least one more reduction this year,” said Shen Jianguang, a Hong Kong-based economist with Mizuho Securities Asia Ltd. who has worked for the European Central Bank. “The data to be released over the weekend must be very weak and inflation must have eased sharply.”