The EU's agreement to stabilize markets will be executed via the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM). Between the two funds, some 750 billion euros will be available. The amount won't suffice if all funds are allocated to bailing out Spain and Italy.
The Spain bailout alone could exhaust both funds, leaving nothing for Italy. True, euro zone leaders have ruled out the possibility of a bailout because they want to save the euro. The banks will receive direct aid so long as countries follow EU mandates and restrictions.
Europe has bought some time and also produced a written collective agreement to do everything necessary to maintain stability in the markets by using the EFSF and these funds in particular. But ailing nations need more than just these two funds, which leaves the door open for the European Central Bank (ECB) to offer their help.
It looks like stock markets agree. They still show bullish trends as they waiting to hear what Draghi will announce on Thursday and how euro zone economic ministers respond later this week after they process details of the summit report.
We don't have to worry about the threat of small nations like Finland and the Netherlands vetoing the agreement. Yes, it's vital that the Spanish government steps ramps up reforms and budget cutback programs so that the nation's risk premium will drop. Domestic Spain getting out of its hole.
