European Rescue Fund May Face Biggest Test Yet

The euro zone’s rescue fund has already helped mount full-scale bailouts of three of Europe’s smaller economies according to the NY Times.  But concern over the health of Spain’s financial institutions — laid low by a festering home-mortgage crisis — has fueled speculation that, for the first time, the bailout fund might be needed to help recapitalize the banks of a big country.

“I don’t foresee the need for Spain to come, but there is a lot of money available,” Klaus P. Regling, chief executive of the euro zone’s current bailout fund, said….. I don’t foresee the need for Spain to come, but there is a lot of money available,” Klaus P. Regling, chief executive of  the European Financial Stability Facility, the emergency bailout fund that still has about €248 billion, or $325 billion, of its original €440 billion of lending power. In July, that fund is to be superceded by a permanent strongbox, the European Stability Mechanism, which will have a firepower of about €500 billion — beyond the €192 billion already committed to Ireland, Portugal and Greece.

But while Mr. Regling says he does not expect Spain to need help bailing out its banks, other analysts do not necessarily share his optimism.  “They are going to have to do something in Spain’s case,” said Simon Tilford, chief economist at the Center for European Reform, a research institute. “This is a big economy and the banks are holed below the water line....”

Read more at http://www.nytimes.com/2012/04/19/business/global/european-rescue-fund-may-face-biggest-test-yet.html?_r=1&ref=business