A scheme to segregate the problematic property loans of all Spanish banks under one roof is believed to be under discussion. The “bad bank” scheme, which is largely being orchestrated to avoid an international rescue programme similar to the ones required by Greece, Ireland and Portugal, would also help Spain retain credibility in international markets.

In a widely expected move, Bank of Japan (BoJ) today stretched its limit on government bond purchases by ¥10tr, but reduced funds set aside for fixed-rate market operations by ¥5tr, effectively increasing its version of quantitative easing by ¥5tr to ¥70tr. This will also help the Bank achieve its inflation target of 1%. BoJ voted unanimously to keep interest rates unchanged at 0.1%.

European Central Bank (ECB) President, Mario Draghi, said the €1tr ultra cheap funds offered by the Bank have created room for governments to reinforce their balance sheets and pursue structural reforms that would boost growth in the Eurozone. He said the ECB’s primary responsibility was to promote price stability in the region, while the responsibility to spur growth lay with governments.

The US Federal Reserve will hold its monthly policy meeting today. The Fed’s stance on the economy is expected to be slightly more optimistic, but any revision in interest rates seems unlikely. However, the Federal Open Market Committee (FOMC) meeting will be closely watched for indication on further QE in the near future.

Dutch Prime Minister, Mark Rutte, offered the resignation of his 18-month old minority coalition government to Queen Beatrix after the populist Freedom Party withdrew support over differences about budget cuts. The political vacuum could push the state into elections as early as June. The resultant uncertainty poses a threat to the nation’s AAA rating unless parties in and outside the coalition reach a consensus on budget cuts. The political paralysis in the Netherlands, which has been Germany’s closest ally in enforcing fiscal discipline in the Eurozone, could also affect implementation of EU’s fiscal compact. German Chancellor Angela Merkel’s fiscal compact seems to be in jeopardy with support from the Netherlands faltering and French presidential election frontrunner, Francois Hollande, vowing to renegotiate the agreement.

The HSBC Flash manufacturing purchasing managers’ index (PMI) moved up to 49.1 in April from 48.3 in March. Though the reading below 50 still implies contraction in factory activity, the recovery in the new orders and new export orders helped the headline index recover. The uptick in manufacturing suggests that monetary easing at the beginning of this year has stimulated factory activity. This should ease concerns about a hard landing of the economy, especially as recovery in the US is showing signs of cooling.

The global economy is expected to grow 3.3% as Asia and Latin America remain the main drivers, as per a poll by Reuters. Easing of the monetary policy in Asia is likely to spur growth in the region. Recovery in the US, though one of the best among its western peers, has not been as good as expected. Yet, the economy is expected to grow 3.2% in 2012 and 4.3% in 2013. The Eurozone, with large variation in the pace of growth among northern (Germany and France) and southern economies (Italy, Spain and Greece), could experience a mild recession until Q3 2012, leading to a contraction of 0.4% in 2012.

The balance sheets of 58 European banks, including BNP Paribas and Deutsche Bank, could shrink by about US$2.6tr, or 7%, in the next two years, if governments are not able to meet fiscal debt targets or if the Eurozone faces shocks that its firewall cannot contain, the International Monetary Fund (IMF) opined in its Global Financial Stability Report released yesterday. Though steps by the EU and the ECB have placated financial markets, global financial risks have not alleviated from six months ago, the IMF added.

Spain threatened economic sanctions against Argentina after the South American nation unveiled plans to expropriate Spanish company Repsol’s controlling stake in YPF. YPF is Argentina’s largest oil producer. Repsol, too, vowed to fight the takeover, terming it ‘unjustified’. Repsol valued YPF at US$18bn and said it would seek compensation accordingly. Argentina flatly refused to accept this price for YPF. On Monday, Argentina’s President, Cristina Fernandez, ordered the renationalisation of YPF in a populist move aimed at curbing the nation’s surging fuel import bill even as state finances worsen. Argentina is also at odds with Britain over oil exploration activities in the Falkland Islands, over which it claims sovereignty.

Spain’s borrowing costs on 10-year government bonds rose above 6% Monday as investors envisaged a new crisis brewing in the Eurozone. Madrid’s interest cost soared after Prime Minister Mariano Rajoy lowered the deficit target for 2012 amid fears of Spain entering a second recession since 2009 and effects of the ECB’s ultra-cheap funds begin to wane. Fear of the country’s banks needing recapitalisation with emergency EU funds, also fuelled the rise in yields. Spain aims to raise around €2-3bn at today’s auction. A more difficult sale of 2- and 10-year bonds, aimed at raising €1.5-2.5bn, has been scheduled for Thursday. Meanwhile, to placate investor fears, Madrid threatened to impose stricter control, as soon as May, over its 17 autonomous regions that breach spending limits.