Spain to ask EU for bail out

BRUSSELS — The euro zone struck a deal on Saturday to hand Cyprus a bailout worth €10-billion ($13-billion), but demanded depositors in its banks forfeit some money to stave off bankruptcy despite the risks of a wider run on savings. The eastern Mediterranean island becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro zone for financial help during the region’s debt crisis.

The European Stability Mechanism, which will have a lending capacity of 500 billion euros, will take over from the European Financial Stability Facility, a temporary mechanism that has so far been used to bail out Ireland and Portugal

Moody's cut ratings on the European Stability Mechanism and European Financial Stability Facility.

Paolo Manasse, 5 April 2011The meeting of the European Council on 24-25 March focused on shoring up the battered Eurozone infrastructure through the European Stability Mechanism. This column argues that the mechanism is seriously flawed. It says it is unlikely to withstand the shock of a severe financial crisis and may even spread the damage to high-debt countries, while leaving the Eurozone in the grip of paralysing vetoes.Full Article: The trouble with the European Stability Mechanism

Editor’s Note: The following post comes to us from Eilis Ferran, Professor of Company and Securities Law, and Valia SG Babis, both at University of Cambridge. Euro Area banks need credible financial backstops.

It is surely not an attractive proposition for, say Spain, to have labour laws coming from Berlin, a currency from Frankfurt, but debts remaining in Spain. And, in a nod to political business cycle theory: