NEW YORK, NY -- (Marketwire) -- 07/03/12 -- Little was expected leading up to the recent summit as the previous 18, since the start of euro zone debt crisis, had done little to ease concerns. Yet foreign bank stocks soared last Friday after the European Union leaders surprisingly announced aggressive plans to help solve Europe's debt crisis. The Paragon Report examines investing opportunities in the Foreign Banking Industry and provides equity research on Banco Santander, S.A. (NYSE: SAN) and Banco Bilbao Vizcaya Argentaria SA (NYSE: BBVA).
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In the 19th summit, the 17 leaders of the European Union agreed to allow bailout funds to be injected directly into banks instead of struggling governments' balance sheets. The recent EUR 100 billion in bailout funds offered to Spain would have previously been lent to the Spanish Government, who in turn would then have to lend it to the banks. Under the new policy funds would be distributed directly to the banks instead of adding debt to the government's books. "I think the elements we put together will reassure the markets," Eurogroup President Jean-Claude Juncker said last Friday.
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The recent decision to inject funds directly into banks "could help stabilize Spain's financial sector and reduce pressures on the Spanish government's balance sheet, allowing for a lower and more sustainable debt trajectory," Fergus J. McCormick, head of sovereign ratings at DBRS, and Alan G. Reid, a DBRS managing director, wrote in a report.
"If these measures are implemented, resulting in improved market sentiment, it could reduce bond yields and provide Spain and other Euro zone governments more breathing room to adjust public finances, stabilize public debt, and return to growth."
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