While senior officials are declaring the worst of the region’s three-year market emergency over, finance ministers are debating whether the ESM should take over earlier bank bailouts that were routed through governments and what to do with so-called “legacy assets”.
A European Union aide who briefed reporters defined those as loans already on a bank’s balance sheet that could cause problems in the future. “It’s really about signaling.” noted Nicolas Veron, senior economist at the Brussels-based Bruegel research group. “The only thing that really has an impact on markets is when the word unlimited is uttered by somebody in charge, so in the end it’s not a question of how high the big number should be.”
The actual amount of ESM funds available for direct aid to banks may be less than €100 billion because the fund needs to fulfill its main mission of lending to governments that lose market access, Veron added. Bank aid may also require additional set-asides for the ESM to maintain a high credit rating.
On a more specific level, investors look to Spain today, as Spanish trade figures are slated for release Monday, followed by house-price data tomorrow showing if the property market endured a fourth year of declines. The Bank of Spain may also release its estimate for fourth-quarter gross domestic product, and the data will culminate in jobs figures on January 24, forecast by economists to show a record 26% of Spaniards unemployed.
Officials predict the euro-area’s fourth-biggest economy faces a further slump this year at a time when the government will struggle to meet its budget goals. Such a backdrop hasn’t deterred investors, with the prospect of a European Central Bank backstop in the event of a bailout enabling the Treasury to fast-track higher 2013 funding needs, selling €16 billion at its first three auctions at lower costs.