But during the second half of July, concerns increased again when reports were received of the weak finances in Spanish regions. This contributed to new speculations regarding whether the loan to the Spanish banks is sufficient, or whether it will be necessary to implement a full-scale support package for Spain. Yields on Spanish government bonds with both short and long maturities rose to new heights. Italy was also affected by the unease. At the same time, yields on German and French government bonds remained at extremely low levels. The problematic situation on the bonds markets was discussed by the European Central Bank, ECB, at the beginning of August. After the meeting, ECB Chairman Mario Draghi made it clear that countries needing acute assistance should first turn to the EFSF/ESM and accept support under the terms they stipulate. After interventions might be undertaken by the ECB, within its mandate for price stability, and the ECB will investigate potential measures. It was already clear that potential bond purchases by the ECB would focus on bonds with shorter maturities. Expectations were fairly high prior to the ECB meeting, and Spanish and Italian bond yields had fallen during the days before the meeting. When the ECB did not announce any immediate measures, yields rose quite strongly at first. They have since fallen somewhat again, primarily yields on government bonds with shorter maturities.
A number of important questions are currently being investigated and suggestions or announcements within various areas have been promised by September. After the European Council’s meeting at the end of June, the sentiment on the financial markets was characterised by uncertainty over the details in the measures the Council announced and the yields on Spanish and Italian government bonds remained high. The uncertainty concerned how to implement and design a joint banking supervision in the euro area, something that is a very large step for the member states. Joint banking supervision is, according to the agreement reached at the meeting, a necessary condition for the European Stability Mechanism, ESM, to be able to recapitalise banks directly. The uncertainty was fuelled by the criticism of another agreement reached at the meeting that the European relief funds should be able to buy government bonds to hold back countries’ interest costs. More details on the loan to the Spanish banking sector More details of the loan of up to EUR 100 billion to the Spanish banking sector were released after the meeting of the Eurogroup finance ministers in July. A Memorandum of Understanding with Spain states, for instance, that the exact size of the loan will be determined after a revision of the Spanish banking sector during the second half of September. However, EUR 30 billion is to be made available this summer as a preliminary bailout for urgent measures.