“Above all the eurozone cannot permit any European Union nation to collapse. At the same time it cannot allow any large banks to go under. It should do what ever is necessary and bear any cost,” the minister said as he spoke at a meeting on economic cooperation between European and Middle Eastern countries in the Serbian capital.
Babacan’s words come as a looming banking crisis in Spain has prompted Berlin and other eurozone powers to contemplate additional funds for tanking Spanish banks, which have been battered by a domestic real estate market in freefall. Reuters on Thursday suggested that the Spanish bank bailout may cost and additional 60-70 billion euros more than the 125 billion already earmarked by European leaders on Saturday.
The minister suggested on Thursday that the eurozone should not delay in recapitalizing Spain’s imperiled banks, stating, “If countries begin to go under one after another, then the cost of bankruptcy will be much higher than the cost of a bailout.” Yet more payments to Spanish banks, whose crisis saw yields on the country’s 10-year bonds hit a European high of 7 percent on Thursday, may only be the tip of the iceberg. Experts pointed to Europe’s third-largest economy, Italy, this week as the next likely member of the growing eurozone bailout breadline. Italy has seen a frightening jump in its 10-year bonds, up to 6.2 percent on June 13 from 4.8 in March. Babacan also spoke about the importance of this Sunday’s Greek elections, which the minister said would be “critical” to the eurozone’s future. At stake is the long-negotiated austerity plan which is reviled among Greek voters and which propelled the anti-austerity Coalition of the Radical Left (SYRIZA) party from nowhere to second place in the May elections. If SYRIZA gains a more solid position than it did in May’s largely inconclusive elections, officials in Berlin and elsewhere fear that the austerity package will be scrapped by the Athens government, a move which would have dire consequences for the eurozone.
Even without a eurozone fracture, the current crisis has already damaged many peripheral economies, especially the Balkans, Babacan warned. “The effect of the crisis in the eurozone on the Balkans should absolutely be paid attention to,” he stated. Southeastern Europe has suffered dramatically from the European slowdown, which has left the emerging economies which export primarily to Western Europe in the lurch. In the first quarter of 2012, Romania’s economy shrank 0.1 percent, the Bulgarian gross domestic product (GDP) remained similarly stagnant, while Slovenia’s GDP expanded a paltry 0.2 percent. Serbia’s and Croatia’s GDP declined by 1.3 on a year ago.
Arguing that such numbers demonstrate the need to loosen tightened eurozone wallets, Babacan suggested that extensive bailouts were likely on the way, telling the press, “We’re hopeful that the right decisions will be made.”