NEW YORK—An early stock market rally on Monday morning quickly fizzled after investors realized that the recent Spanish bank bailout is only be a temporary fix and many more holistic changes are needed to rescue Europe.
The Dow Jones Industrial Average fell 143 points, or 1.1 percent, Monday, after a brief rally in the morning sent the blue-chip index higher by more than 80 points. The S&P 500 Index dropped 17 points, or 1.3 percent. The Nasdaq-Composite Index slumped 1.7 percent, or 49 points.
Over the weekend, Spain received a bailout of 100 billion euros ($125 billion) from the European Financial Stability Facility to fill the coffers of its troubled banks. The 100 billion figure is an estimate, as Spain has said that it would firm up the exact amount after certain audits are completed next week. That action triggered a brief rally on Wall Street, but it quickly became apparent that merely 100 billion euros was not going to be a permanent fix for Spain, or the eurozone.
Still very deeply ingrained in the minds of investors, traders, and economists are the fundamental issues surrounding Spain—the high unemployment, an impossible-to-mend budget, and more bad real estate assets on the balance sheets of its banks. In addition, this coming weekend’s Greek elections, which could determine whether Greece remains a member of the 17-nation eurozone, will help to determine which direction the market truly goes.
“Two words come to mind regarding the latest bid by the eurozone to rectify its issues: marginal utility. Each effort at grabbing control of the crisis still buys time, but less and less,” Forbes magazine said in an editorial on Monday, underscoring the diminishing returns of what few options European politicians have remaining to fix the crisis.
Even so, any joy over the temporary fix of Spanish banks was short lived. Fitch Ratings downgraded Banco Santander and Banco Bilbao Vizcaya Argentaria from A to BBB+, less than a week after downgrading the debt of Spain by three notches.
The Spanish economy sank into recession in the first quarter of 2012, and it has been deepening as the ongoing austerity measures have sapped any growth opportunities.
These and other worries prompted Fitch’s downgrade Monday. The rating agency said that it expects Spain to remain in recession through 2013, according to its report.
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