The Bank Bailout Does Not Solve The Eurozone Problems

Stock market responded positively to the Spanish banking system bailout.  This article raises several questions about the impact of the bailout.  One problem is that the funds are actually loans to the Spanish government.  They will pay lower interest on these loans from central agencies than they would in the market, but the government's total debt will also increase.  Private investors may respond to the increase in sovereign debt by demanding higher interest rates on sovereign debt.  It is also not clear that providing liquidity to the banks will make them more solvent.  If the economy continues to shrink, the assets that banks hold will become less valuable as the default rate increases.