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Debt Drama in Spain Ahead of The EU Summit

Spain formally asks for a banking package ahead of the EU meetings


All eyes are on Europe in the run-up to the European Union summit, which takes place this Thursday and Friday.

Expectations for the summit are relatively low, especially considering the results of the meeting in Rome on Friday between the eurozone’s four largest economies. Although they pledged to back a $160 billion growth package to defend the euro, they remained divided over the credit crisis as Germany continued to resist proposals to issue common debt and use bailout funds to stabilize financial markets. To be certain, developments here are going to continue to cause some choppiness in global markets.

The biggest market mover earlier this week was Spain’s formal request for up to $125 billion for its banks, with plans to complete the aid package by July 9. But questions remain over the terms of the deal. Plus, although traders expected the nation to ask for a bailout, they weren’t expecting for Spain to request the full amount made available. This is why the market was in a sour mood earlier, but investors clearly aren’t in panic mode which is a great sign of strength.

Last week, an independent audit of Spain’s banks concluded that up to $78 billion would be needed to recapitalize the troubled sector, and will likely be used to help determine how much aid the country gets. Right now, Spain’s borrowing costs remain extraordinarily high relative to other euro-zone members, and Moody’s (NYSE:MCO)is widely expected to cut the ratings of all Spanish lenders later today, so the country is by no means out of the woods yet.

Also affecting global markets was the downgrade of Cyprus to junk by ratings firm Fitch, and traders selling positions ahead of the market-moving E.U. summit later this week.

The chaos in Europe is going to continue for some time, and Monday’s market pullback provided a significant opportunity to initiate positions in several strong countries and markets. In fact, today I’m adding three stocks to our Global Growth Buy List.

Article printed from InvestorPlace Media,

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