Eu100bn bailout for Spanish banks! Sovereign debt. Aviva exposure.

So Spain and the EU leadership have both managed to save some face and get a bailout of Spanish banks in place without any of the conditions attached to the EU/IMF bail outs granted to Greece, Portugal, and Ireland.

Not sure what to read into it and whether it will be sufficient to contain potential banking contagion but it temporarily pushes Spain behind Greece as this week's biggest headache.

But, given the speculation around, and downgrading of, Italian and French banks, it sets a precedent of company rather than sovereign state bail out that the EU will have difficulty changing despite the qualifying claims that Spain is in recession and has implemented a measure of austerity targeted reforms.

(11 June:- Not quite correct as I now see that the funds will go to the Spanish government (adding to its liabilities) but without any austerity requirement http://www.citywire.co.uk: Spain sovereign bailout fears grow after bank rescue).

However, it still raises questions about the scale of debt across European banks (including UK), and how deep or widespread it might yet go.
Based upon contagion estimates of Eu 1tn from the IMF's Christine Lagarde this could have some way to go.
Against this estimate, Eu 100bn would seem cheap.

All in all, it must be a step in the right direction though and must give the ECB food for thought with regards to the scale of a problem that they have seemed, in the main, in denial about.

With regards to my concerns about Aviva, and its Spanish bonds (Aviva Interim update; solid start to 2012 (but still sinking on Euro concerns).) , it must be a (slightly) positive move given that it provides some kind of break against Spain's Sovereign debt and might help provide some downward pressure on the yields that the Spanish government is currently being forced to accept for its borrowings.

I see that the Sundays are reporting it quite negatively (www.thisismoney.co.uk: Spain seeks £80bn rescue package for its ailing banks as eurozone crisis deepens) in relation to markets so it will be interesting to see how markets actually react come Monday morning and how the next round of bond auctions go.

Related article links:
- www.thisismoney.co.uk: Spain seeks £80bn rescue package for its ailing banks as eurozone crisis deepens

Related posts:
- Aviva Interim update; solid start to 2012 (but still sinking on Euro concerns).
- May 2012: Portfolio Update.
- Rain followed by thundery showers: Spanish woes; Britain's banks; and RBS.