(Photo: Internet)

(VOVworld) - Late last week, Eurozone  Finance Ministers agreed to lend Spain 125 billion USD to rescue its banking system even though the financial condition of the European Financial Stability Facility (EFSF) and the European Stability Mechanism are already stretched thin. Spain is the fourth euro economy to seek a bailout following in the footsteps of Greece, Ireland, and Portugal. The move is considered a great effort by the Eurozone to maintain the region’s economic stability. But there remain many worries about the long-term efficiency of this aid package.

While Spain was considered to be the fourth largest economy in the Eurozone but warning signs of an economic downturn for the country began months ago. According to information from the country’s National Statistics Institute in April, its GDP dropped 0.3% in the first quarter of this year making the economy to enjoy a minus growth in two consecutive quarters. Spain is also a nation with an unemployment rate of up to 5.6 million people. This already high figure is forecast to rise further in the coming months. Spain’s Government anticipates that its economy will fall about 1.7% this year and target 0.2% gross domestic product growth next year. And not to mention, the state budget deficit of 8.9% of last year GDP, the Government debts at 70%, foreign debts at 90% GDP and has almost peaked the threshold of 1 trillion Euros, on par with Greece, the country with the highest risk of bankruptcy in the world. The bad debts of Spain’s banks are 8.37% equal to nearly 150 billion Euros, the highest level in the past 17 years. Analysts say Spain’s economy will continue to decline further if the financial situation is not improved.

It is obvious that if the fourth largest economy in the Eurozone is not saved in time, its consequences will be serious for not only the continent but the recovery of the entire global economy. In this context, the approval to Spain’s request for an aid package seems to relieve many European nations. German Finance Minister Wolfgang Schaeuble said the agreement for lending to Spain proves the solidarity among the European Union. Japanese Finance Minister Jun Azumi praises support for Spain to re-structure the banking system as a contribution to achieving global economic stability. Economists also admitted that bailout funding for Spain is a major step towards restructuring the banking systems.

But the bailout doesn’t mean it is an optimal long-term solution. Many say the amount of 125 billion USD will help prevent the freezing of the European financial system in the short term. Even the decision didn’t receive a positive reaction from the world market. On Monday, international investors raced to sell stocks causing major securities indexes in the US market drop sharply. From the New York Stock Exchange, Dow Jones Industrial Average of 30 large publicly owned companies in the US dropped 143 points equal to 1.1% to 12,411. The Nasdaq index and the broad S&P 500 stock index even fell 1.7% and 1.3% respectively. Crude oil prices in the world market dropped to the lowest level over the last 8 months. In New York, the benchmark oil for July delivery fell 1.40 USD to 82.70 USD a barrel. This is the first fall of oil prices to less than 83 USD a barrel since last October. Brent crude, which is used to price international varieties of oil, dropped 81 cents to 98 USD per barrel in London.

The bailout package worth 125 billion dollars for Spain is only to supplement necessary capital for the country’s banking system. How it will influence the settlement of the Europe’s debt crisis remain ambiguous. It is time to develop an overall and emergency solution for the issue.

Hong Van