Why €100 Billion Is Not Enough

10/07/2012

Javier Díaz Giménez

Why €100bn Is Not Enough

The €100 billion bailout doesn’t solve Spain’s problems, says Prof. Javier Diáz-Giménez. The labor market is weak and there are doubts that the government can meet its deficit targets. He says Spain should make Bankia its “bad bank” and dump all the other banks’ bad assets into it. Then it should go into liquidation.

The Eurogroup's recent €100 billion bailout package for Spain will not solve many of the country's lingering problems, says IESE Prof. Javier Díaz-Giménez. In the future, Spain will still grapple with a weak labor market, doubts about its ability to meet deficit reduction targets and the problem of bad banks.
 
Díaz-Giménez argues for a radical strategy: Spain should place all the damaged assets of other banks and savings and loans into a single "bad bank, namely Bankia, and then go into liquidation. This possible solution, however, will likely be rejected in favor of some other more politically correct one”, he says.

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