Spain, Ireland, and austerity.

Spain’s banks are getting a series of loans. Hooray. The rather vague Eurogroup statement on Spain is here. It’s being reported that Spain will require up to 100 billion euro for its banks, which will be added to its national debt. The money will come in tranches, first from the EFSF, and then later from the ESM. There aren’t specific austerity measures attached to this series of loans. People in Ireland are sure to lose their minds over the fact that there won’t be specific conditionality attached to these loans, and the IMF will be ‘observers’ rather than actually part of a Troika of funders. The talk generally is likely to be something like ‘why couldn’t we get such a deal’, and apparently Minister Noonan will be bringing this up with his colleagues at a later date.

It should be noted however that Spain is already enduring a fair bit of austerity, has already signed up to the Fiscal Treaty, and so will have to produce a `programme’ of sorts under its own steam. Spain’s economy is also in pretty rough shape. I made the chart below from FRED to show household debt as a percentage of GDP (left hand axis) and unemployment in Spain (right hand axis), two variables we should be interested in. Clearly with an unemployment rate heading for 25%, a very indebted household sector, and a set of bunched bank balance sheets, the Spaniards have their work cut out for them even without a further programme of adjustment.

A few things to consider:

1. Will treating Spanish banks separately (in some sense) to the sovereign prevent its bond yields from spiking?

2. What will the effect on the EFSF and ESM balance sheets from a large scale Spanish ‘withdrawal’?

3. Will everyone now immediately target Italy (or Belgium) as the next domino to fall?

Author: Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

56 thoughts on “Spain, Ireland, and austerity.”

  1. How is a loan “capital” for a bank? A form of bank bond guaranteed by the sovereign, perhaps? How would this prevent sovereign rates from rising?

  2. @Peter, the loans are funneled through the Fund for Orderly Bank Restructuring which will act “as agent” of the Spanish government, and so can receive the funds and channel them to the banks.

    The spreads may of course blow up, but they may not.

  3. “Irish Finance Minister Michael Noonan this evening said the Spanish deal will not mean a better deal for Ireland on its banking debts.
    Speaking in Limerick, Minister Noonan said the deal agreed with Spain replicates the recapitalisation part of the deal that was done for Ireland.
    He described the deal as “satisfactory” and said it would bring about much needed stablity to the eurozone.
    Minister Noonan said that he would have preferred if the money was pumped directly into the Spanish banks rather than through the sovereign and he said he would expect the same to apply to Ireland.”

    What is stopping us from requesting EFSF/ESM money (64 billion) to replace the funds we used to recapitalize the banks?

  4. CP,
    Where did our bail out money come from?
    Some from official sources, some from the NPRF-already borrowed- some from the PN s which are extremely cheap funding at maybe 1% .

  5. I think the link between the sovereign and the banking system is by now clearly established so this window dressing will hardly save the Spanish bond yields from rising. Besides, banks are only a part of the story. What about regions? Catalonia is bust? Cajas are covered with fig leaves.

  6. Also note that each country is treated differently, although it is difficult to see how is the Spanish case different from the Irish case. Except that Spain is too big to push around and the Irish were pesky in good days. But this hypocrisy clearly shows how the EU politics work (at least for those half-blind idealists who failed to see that long ago).

  7. @Stephen Kinsella

    re “The rather vague Eurogroup statement on Spain is here.”

    Vague indeed.
    Spain wins.
    “The Spanish government will retain the full responsibility of the financial assistance and will sign the MoU.”

    I wonder how that translates into Spanish.
    What is ‘full responsibility of the ‘financial assistance’.
    Note that it is not ‘full responsibility for the financial assistance’.

    Will Spain sign a ‘promissory note’ to pay it back. I doubt it. It does not read that way.

    And how much:
    “The loan will be scaled to provide an effective backstop covering for all possible capital requirements…”

    Spanish banks are being covered for ‘all possible capital requirements’. No Limit.

    Spain wins. I am delighted. Ecstatic.
    European banks are to be bailed out from central funds, with the sovereigns retaining only;
    “the full responsibility of the financial assistance “, which can mean everything or nothing.
    Well done, Spain.

  8. @ CP

    “He described the deal as “satisfactory” and said it would bring about much needed stability to the eurozone.”

    Until Wednesday lunchtime

    I think there’s $370bn managed by either macro hedge funds or all hfs and they have these very fancy spreadsheets and they can run surveys of what people are saying on facebook and figure out how the S&P 500 will move at 10.15 on the last Tuesday of April but they have no clue what is going to happen in the next 2 months in the EZ because you can’t model it in Excel because the assumptions depend on variables such as what side of the bed people get out of . And it has the potential to be like like those Hindu pilgrimages where someone trips and there’s a stampede. But they aren’t really afraid yet so the Endloesung isn’t yet on the cards.

  9. Germany’s finance minister, Wolfgang Schäuble, praised the reforms undertaken thus far by Spain, calling the teleconference “constructive” and saying in a statement that “Spain is on the right path and Germany, just like the other countries and institutions of the euro zone, as well as probably the I.M.F., will support Spain on that way.”

    The money will be channeled through the Spanish bank-bailout fund but the Spanish government will ultimately be responsible and will have to sign the memorandum of understanding and the conditions that come with it.

    Mr. de Guindos said that the terms of the emergency loan would be “very favorable” but only set in coming days. He noted that “not all the financial institutions need capital,” adding that “the problem that we face affects about 30 percent of the Spanish banking system.”

    Robert Tornabell, banking professor at the Esade business school in Barcelona, said that despite the government’s insistence to the contrary “what has just been agreed is in fact a bailout, just like what had to be done for Ireland because of its banking problems.”

    http://www.nytimes.com/2012/06/10/business/global/spain-moves-closer-to-bailout-of-banks.html?_r=1&emc=na

    Certain Tentacles have relaxed … matrixsQuidesque like …

    @Spanish citizen_serfs

    In solidarity – let’s get together …?

  10. … meanwhile the roman_serfs are lining up to be crucified on the Appian Way … again …

  11. German firms urge rejection of stability mechanism

    They ‘come out’ in favour of old-style capitalism …

    A protest letter signed by 350 of Germany’s best-known companies such as Kärcher, Henkel and Würth attacks the bailout fund and disputes what it calls the “myth that Europe can only survive as a transfer union”.

    The companies take issue with “political whitewash” over the euro, which it sees as a “driving force for dispute, jealousy and hate” in today’s Europe.

    “The coercion and consequences of a common currency are beginning to divide European peoples permanently,” said the statement. “Not every means is permitted to save the euro – and those who want to save the euro at any price risk the price being Europe.” With its statement the association joins a growing wave of protest against the European Stability Mechanism in Germany.

    http://www.irishtimes.com/newspaper/world/2012/0609/1224317568965.html

    At least 10 government MPs are planning to vote against the ESM. They are calling for a “debt-conversion mechanism”, allowing crisis countries to receive funds and retain budget sovereignty while participating in an International Monetary Fund-chaired arbitration procedure with creditors to decide on debt write-downs.

  12. These are important issues and thanks for the post, Stephen.

    In my opinion it doesn’t matter about the conditionality or the “observation” as opposed to participation of the IMF. In short, who cares? The fact is that the loans will be added to the Spanish national debt, so the end result will be same as in Ireland.

    Pride concerning the supervision of external agencies is a non-issue. Maybe Rajoy can claim a small victory both the only good outcome that was possible for Spain was if the EFSF/ESM (partly) recapitalised Spanish banks directly. That was never going to happen and the rest of the details amount to inconsequential squabbling and political point scoring.

    TO answer the specific questions:

    1. the end result to the Spanish debt burden will be the same as in Ireland, so unless there is a legal distinction or seniority between this bank debt and Spanish sovereign debt, then yields on Spanish debt will keep on climbing (I presume EFSF and ESM debt is senior to existing Spanish sov debt).
    2. What do you mean by Spanish “withdrawal”? If you mean a Spanish exit form the EZ, then the whole currency is finished.
    3. Belgium will not be targeted next – its debt is under 100% of GDP. I don’t think Italy will be targeted either – there aren’t huge losses on Italian banks’ balance sheets (apart from unrealised sov debt losses) and the sovereign’s debt is already unsustainable, absent LTRO.

    From here it will be a gradual escalation of the losses in Spanish banks and more bank runs. The Spanish public will not tolerate such high unemployment for long and the mounting sovereign debt will make it irreversible. Even if everything goes smoothly in Greece, Spain will leave the Euro within 12 months, unless there is a major shift in policy.

    From our point of view who cares that they have had to endure full bailout supervision. At the end of the day Spanish debt will become unsustainable just like Ireland’s. Hopefully, this will become one more nail in the coffin of the current policy direction.

    When it comes the Germany/ECB/Bundesbank, my attitude now is give them everything they want – when they have enough rope they will hang themselves.

  13. @Joseph Ryan

    I do not know the details, but it appears these loans are bone fide Spanish sovereign debt that is senior to all other Spanish debt. If this is the case, then Spain definately does not “win”.

    Does anyone else have an opinion on this?

  14. @Bazza

    I’m waiting for UDI in Barcelona and Catalonia. Bit o form there …

    This is a trillion dollar disaster for Spain …. the sovereign is destroyed in a rapid exponential …

  15. @Bazza/ @Stephen Kinsella.

    My previous post was not well worded. I fully agree with Stephen Kinsella that the wording is vague. But why is it vague?

    The bottom line is will the Spanish sovereign have to sign a promissory note to pay back the funds. It does not sound that it must or that it will.
    And by routing all funds through FOBR or some such vehicle, Spain is keeping its distance from theses loan funds and the banks.

    That is why I say, Spain wins. Of course I could be wrong. I certainly will be wrong if we see Spanish ink on a promissory note.

  16. It wont be long before Spain loses Market access, followed quickly by France, due to Francois’ fiscal incontinence. Then it is print or bust.
    As a sovereign , we should prepare for the worst. Balance the books now.

  17. Just leaked:
    Article 14 of the MOU states that Spain will face additional penalties if they beat Germany in the European Championships…

    Honestly though this is window dressing. The Spanish govt has respinsibuty for the FROB. So it will end up paying what the banks cannot (and that’s likely to bd a lot…!)

  18. @DOCM

    Thank you for the link above: I have attempted to read it but would contend that the circumstances of the new Spanish deal do not appear to be fully covered by the document you refer to:
    The nearest I can get to sovereign liability is this piece:

    “The initiative to request support shall come from the government, which will indicate the institution(s) in distress, which eventually will receive the loan. This loan will be channelled through the national authorities, which ultimately bear the liability of the loan.”

    The first question is whether the loan is being channelled through the ‘national authorities’. The Spanish sovereign itself has studiously avoided this , even though FROB may fit the bill.
    The second point is that a contingent liability is just that. There is no promissory note that ‘has’ to paid on a certain date.

    I still think Spain won notwithstanding the EFSF document. However I do acknowledge that the EFSF (as per the document ) can try to stick up more specific rules to entrap Spain more securely. Though Spain would be likely to resist such impositions.

  19. @stephen

    The coverage as i have read it, and possibly misunderstood, is that the Spanish deal was jointly agreed with other Euro finance ministries.

    So my question is why did Noonan sign up to a deal that on the face of things is simply better for the sovereign?

    Presumably part of the ‘vote yes’ spin was the likelihood of Ireland ‘doing a Spain’ on its debt.

    ESM for the big boys, and IMF for the rest?

  20. re- David O’Donnell on the German firms.

    How much clout will this carry ?
    I have to say that it sounds good to my ears, but I’m afraid of going on appearances too much.

    ‘They are calling for a “debt-conversion mechanism”, allowing crisis countries to receive funds and retain budget sovereignty while participating in an International Monetary Fund-chaired arbitration procedure with creditors to decide on debt write-downs.’

    Back to friendly, common-market relations, and let’s jettison the Unification Psychos who turned the EU flag into a sinister-looking Masonic ‘Eye’ ?
    One can only hope.

  21. I would not be surprised if the Spanish Gov’t is positioning itself to avoid what befell Ireland. If the Spanish banks fail the hit will be taken by their creditors, the governments of the creditors or the supranational guarantors and aid/loan granters or a combination of all three.

    The first responsibility of a government is to not imperil the sovereign.

  22. Spain has been drawn into the spiders web and it looks like they will be encircled with more and more intricately weaved German rules to make sure they do not escape.

    America seems to be playing the role of agent provocateur, earlier today, I think it was JP Morgan, was intimating that 100bn would not be near enough to sort out Spain’s banks stating that it would be at least 300bn. A very helpful comment to make sure the sticking paster does not stay on for very long!

    Will this EFSF debt be converted into ESM denominated debt?

    From the EFSF guidelines doc.

    3 Where appropriate, “additional conditionality could draw from the future EU bank crisis
    resolution framework” which will be proposed by the Commission after summer. In
    particular, such a conditionality could include requirements to enhance the supervisory
    toolbox in the three crucial phases of crisis management identified (preparation, early
    intervention and resolution) such as recovery and resolution plans, early intervention tools
    for supervisory authorities, asset separation tools, bail-in tools.

    5 This part of the conditionality is consistent and similar to the current practices in the programme countries or in any state aid decisions taken for the rescues in the financial sector since the beginning of the crisis.

    Finally, there must be an obligation for the beneficiary country to recover the bank rescue
    aid according to agreed procedures and to reimburse the loan in case of non-compliance
    with European state-aid rules, while ensuring appropriate financial stability conditions.”

    The elasticity of these rules is almost boundless.

  23. Spain 0 Germany 10

    Borrowing at 3.5/4% to recapitalize the banks makes our Promissary Notes look like a sweet heart deal.

  24. If Spanish and Irish football supporters meet up for a drink after the match this week will that give a new meaning to the term ‘socialising the debt’?

  25. While reckless private sector bankers caused a lot of damage in several countries, the experience from Spain and Germany is that allowing regional politicians a role in lending decisions can be as dangerous.

    Cajas de ahorros (savings banks, caixa in Catalan) have traditionally dominated the home mortgage sector while during the property bubble, the universal banks sought to increase their share of the market.

    The Caja de Ahorros del Mediterráneo (CAM) had agreed to fund a Spanish developer who planned to build a resort in Mexico with up to 30,000 hotel rooms.

    Embattled Bankia began with the merger of Caja Madrid and BanCaja (which were controlled by Partido Popular [now the governing party] politicians in the Madrid and Valencia regions) and 5 other cajas later merged with them to form Spain’s fourth-largest bank (the first in terms of domestic business volume): 10m customers and an estimated €37bn in toxic property loans.

    I wrote in 2009 how the Irish central bank had declared its impotence before the launch of the euro while from the early years of the property bubble, the Bank of Spain insisted that the banks it regulated should increase its ‘rainy day’ reserves.

    http://www.finfacts.ie/irishfinancenews/article_1017822.shtml

    The two biggest banks, Banco Santander and BBVA, also have revenue streams from outside Spain. Only 28% of Banco Santander’s total loan book is exposed to Spain while BBVA has an exposure of 55% but only 7% of its Spanish property loan portfolio is due from developers compared with 22% at Santander.

    Banco Santander’s loan deposit ratio was at 115% at the end of March while BBVA’s was at 83%. Santander’s non-performing loan ratio of 3.98% is better than the US average.

    BBVA’s European sovereign debt exposure is at 11% of total assets – – almost triple Santander’s and both banks mainly hold Spanish debt.

    Until recently, Spanish house prices have fallen at a slow rate.

    The Wall Street Journal said in March that recent steep drops indicated that Spanish property prices are now correcting at a similar pace to that seen in the US soon after the 2008 financial crisis, and may fall further at least this year. In previous quarters, price drops were somewhat contained, the result of support efforts by the government and banks, fearful of the effect of a housing collapse.

    Spanish banks hold more than €400bn worth of loans to the construction and real-estate sector, backed by collateral that loses value as property prices slide further. The amount is equivalent to around 40% of Spain’s gross domestic product.

    In 2007, Spain with a population of 40m, built 690,000 new homes – – as many as France, the UK and Germany combined. In Ireland 78,027 housing units were built down from 93,419 in 2006 and 1.5m units were built in the US, with a population of 305m, down from 2m in 2006.

    Banco Santander, which was founded in the 1850s in the northern port city of Santander, is still run by the founding Botín family and many of us Irish are descended from people who migrated north from this region.

    Some later migrated south and Emilio Botín, the current chairman, is married to Paloma O’Shea Artiñano (b. 1936), 1st Marquise of O’Shea, who is an accomplished pianist.

  26. A key issue is whether the loans to the Spanish banks, as guaranteed by the sovereign Spanish government, will be repaid from bank resources – either via a capital gain on sale of nationalised ownership, dividends paid to the sovereign or bank profits. A first port of call for the Spanish government might be to set out a solid realisable working assumption on how, over time (a decade or so), the loans will be repaid or matched by gains from state ownership. That’s if the banks being bailed out are from the ‘not-so-bad’ category (such as Aib, Ebs, BoI, IL&P), and not from the ‘very-bad’ category (such as AngloNationwide).

  27. If this money is going in as capital to some Spanish banks does this mean that we European taxpayers will own these banks or is it merely loan capital guaranteed by the Spanish state?

  28. @Bazza
    Apparently EFSF/ESM loans to Spain will not rank in priority to Spanish sovereign debt…and this could be crucial. I can’t find the source of this but it appeared over the last few days.

  29. These are very interesting questions. My gut is that there will be an initial fall, followed by a sovereign downgrade, followed by another rise. Here’s why.
    The money lent to the FROB can be used by their own banks to buy their own bonds – thus pushing down bond price.
    The problem god the markets is the ESM. This will be senior to all others in terms of repayments. So the FROB becomes a much safer place to invest than the Spanish sovereign. That will lead to the downgrade and rise in bond yields.
    Regarding Belgium and France I’m not sure the markets need to bring them to the abyss right now. Sure they’ll push up Belgiums yield but they need to get a decent return from something now.
    The other issue with all of this is that these are not bailouts. They are the national equivalent of switching credit cards.
    Regarding previous comments on the Euro holding its value that’s because the ECB will not print. It leads to a brittle situation where it will fracture rather than stretch

  30. Someone likes us.

    “Various commentators have argued that the Eurozone needs to backstop its banking system, say by issuing deposit guarantees. Instead, just as the Troika did with Ireland, the Eurocrats are intent on making a bust banking system the problem of its already-stressed government, even when the markets are certain to see around the circularity of that arrangement. We argued that the Irish had the upper hand and could have stared down the Troika (Irish bank failures would have blown back to certain German banks), but Irish were sold out by the head of their central bank. Spain was widely acknowledged as having considerable leverage in its negotiations with the officialdom; it is clearly too big to fail. So it is puzzling that it allowed itself to be put in the same position as the Irish. It seems the Spanish were so pleased not to be required to implement more draconian austerity measures that they settled for less than they could have.”

    http://www.nakedcapitalism.com/2012/06/spanish-bank-rescue-will-the-treatment-make-the-patient-worse.html

  31. @Mickey Hickey I see from the article you linked that any money the Spanish receive from the ESM will rank in priority…..

    “To the extent the funds come from the ESM, those obligations will be senior to that of existing and new sovereign bond issuance”

    Isn’t there also a mechanism in the ESM for haircutting?

    Seems very negative for Spanish sovereign debt.

  32. @ Paul Hunt
    All very reasonable. But it looks like your arc now extends to France and maybe Belgium and maybe the UK too?

    Anyhew let the thing fall apart. It’s a mess at this stage. Too many different values and culture competing here. Shows over lads. Burn the banks, revert to national currencies and start again

  33. “It should be noted however that Spain is already enduring a fair bit of austerity, has already signed up to the Fiscal Treaty, and so will have to produce a `programme’ of sorts under its own steam”.

    This, surely, isn’t the reason Spain has no extra conditions imposed on it while Ireland did. Ireland too was ‘already enduring a fair bit of austerity’ and had its own ‘deficit-reduction’ programme.

  34. A key issue is whether the loans to the Spanish banks, as guaranteed by the sovereign Spanish government, will be repaid from bank resources instead of by the taxpayer, e.g. either via a capital gain on sale of nationalised ownership, dividends paid to the sovereign or bank profits. Can the Spanish Government show that repayment will be from bank resources and not the taxpayer? Can it set out a solid realisable working assumption now on how, over time (a decade or so), the loans will be repaid or matched by gains from state ownership. If so, all is not lost.

    The quid pro quo for government bailout of banks is ownership/equity. The future value of this ownership and the cash-flow arising could offset fully the bailout cost. Financial instruments could be designed to better join-up the asset/liability. The same applies in Ireland.

    But re Spain: That’s if the banks being bailed out there are from the ‘not-so-bad’ category (such as Aib, Ebs, BoI, IL&P), and not from the ‘very-bad’ category (such as AngloNationwide).

  35. @ Ceterisparibus

    The terse statement by Geithner refers to a “financial” not a “fiscal” union. There is a big difference.

    http://www.treasury.gov/press-center/press-releases/Pages/tg1610.aspx

    It seems to me that the fundamental change in direction implicit in the deal done with Spain may be being overlooked. It is clear from the EFSF guidelines that the present situation was an eventuality to which much prior thought has been give. As throughout this crisis, it may lead in unintended directions including the desirable one of recognition by all concerned – and by Germany in particular – that the root cause is a banking not a sovereign debt crisis brought about solely by overspending.

    The state aid aspect is also very significant as the powers to act that are available to the Commission are considerable cf. closing paragraphs of Euro Group statement.

    http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/130778.pdf

    The Brussles blog of the FT on the ten things to remember about a possible banking union is also worth recalling.

    http://blogs.ft.com/brusselsblog/2012/06/ten-things-to-remember-about-a-banking-union/#axzz1xKoZqp5f

    The EU – in this context the EA plus the UK – has simply being playing at charades in this area. The legal basis to do more is already in existence. What is lacking is the political will to use it. And both London and Berlin have to accept that they cannot have their cake and eat it. (Hollande, unfortunately, seems intent on writing France out of the equation).

    No more than 30 banks are involved. Their affairs should be easier to mind at the crossroads than the concerns of an electorate of 500 million although there is certain to be insistence on dressing up the entire exercise in a further drive for an unattainable and unnecessary political and/or fiscal union.

    It is difficult to see any dramatic breakthrough immediately unless the Greeks do something dramatic. But the general European political landscape seems more promising from an Irish perspective. This has nothing to do with the outcome of the referendum.

  36. A key issue is whether the loans to the Spanish banks, as guaranteed by the sovereign Spanish government, will be repaid from bank resources instead of by the taxpayer, e.g. either via a capital gain on sale of nationalised ownership, dividends paid to the sovereign or bank profits. Can the Spanish Government show that repayment will be from bank resources and not the taxpayer? Can it set out a solid realisable working assumption now on how, over time (a decade or so), the loans will be repaid or matched by gains from state ownership. If so, all is not lost.

    The quid pro quo for government bailout of banks is ownership/equity. The future value of this ownership and the cash-flow arising could offset fully the bailout cost. Financial instruments could be designed to better join-up the asset/liability. The same applies in Ireland.

    But re Spain: That’s if the banks being bailed out there are from the ‘not-so-bad’ category (such as Aib, Ebs, BoI, IL&P), and not from the ‘very-bad’ category (such as AngloNationwide).

  37. Brendan O’Connor has a good article in the Sindo …
    This bit is definitely apt.
    “And it seems that it was all bullshit anyway. The Germans have no intention of giving us a deal on bank debt. They sent out some minor operative to quash that one on Tuesday. There will be no deal because it would send out the wrong signal about Ireland’s recovery, apparently. In other words, we are the good boys, therefore we don’t get any treats. Which has to make you question our strategy of, “If we are good and keep saying ‘Yes’, they will give us a deal.” That is clearly not how it works. The people who get the deals are the ones who cause trouble, like the Greeks. Now don’t get me wrong, we don’t want to be the Greeks, but by Jesus they got left off a lot of their debt. And then the Spanish are getting a compromise bank deal because they eyeballed the Germans. Though admittedly Spain had more of a bargaining chip than us, given its size. Still, we seem to be strategically important to the whole austerity thing. It definitely matters to them that Ireland comes through this.”

  38. I think people here are falling for Rajoys spin on this.
    The money is being loaned to an agent of the Spanish state for which the Spanish state is responsible.
    Yes the repayments will come from bank resources but the state will have to pick up the tab for the shortfall.

    The error in all the thinking so far has been to think that things will get better eventually if we just keep banking alive for a bit longer. The problem is that the tab that the Spanish state will have to pick up will be immense. Their country is really fubbard. There is no money returning to banks because the debtors are all broke. This is also true of Ireland. Our country is economically banjaxed and getting more so with each passing day.

    Take out the assumption that things are destined to get better and all the interventions to date are nonsensical.

    So this is essentially the same deal as Ireland got. The manner in which the chalice was presented was a little different but the poison it contains is the same. The Spanish people are unlikely to be fooled for long. Soon it will be bye bye Rajoy

  39. The ultima ratio question is: will Spain avoid increasing bond rates?? If the unconditional 100 bn programme will be supported by additional ECB activites, then Ireland has been scared as nobody during the World History.

  40. re- Bunbury: ‘If Spanish and Irish football supporters meet up for a drink after the match this week will that give a new meaning to the term ’socialising the debt’?’

    – Syriza are calling for an alliance of ‘affected’ countries to change the ‘direction the EU is heading’.
    Someone in the commission apparantly has openly called for a political union to be led by Germany.

  41. And apparently Hollande needs the support of an anti-EU far-left to get a majority in the elections.

  42. last monday – http://online.wsj.com/article/SB10001424052702303830204577444433586182916.html

    ‘Yet the euro zone needs to move toward deeper political union now—including embracing a banking union and common euro-zone bonds—or risk certain disaster, as European Central Bank president Mario Draghi warned last week. Given the alternative, the best bet must be that the euro zone does embrace deeper integration, probably including Greece. What emerges won’t be anyone’s idea of utopia, it may not be economically successful and it certainly won’t be very democratic, but it will be a political union.’

    A dangerous truth there, which can’t be diluted even in the usual blasé attitude to european political union which we hear from America.
    I suppose it stems from thinking of ‘europe’ as a single entity, which you ‘do’ on vacation. A far closer analogy to their own amalgamation is, of course, the US ceding similar controls to the CCCP.

  43. re- DOCM
    From, er, ‘RayUSA’, commentator on the Telegraph article:
    “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. ”
    Thomas Jefferson,
    3rd president of US (1743 – 1826)

  44. @Eureka

    “I think people here are falling for Rajoys spin on this”

    This is a victory for Spain and a victory for the Euro. It is not a full bailout. €100bn is far to much and will keep the markets quiet forever. Spain is a different case. We are fundamentally sound as a country. Er, ……

    Sorry…. I am unable to continue…… I can’t pick myself up of the floor long enough to type because I’m laughing so bloody hard reading some of the bollix some people I actually know are repeating in the press…..

    Fubar’d is right.

    Who’s next for sticking out their grubby little mits for a handout then? Italian banks? Let’s go and muck around with their 10 year rate this week then and make a few bob while we’re waiting for them to go down.

    Serious question: why do ALL the banks in Spain have to be saved. WHy doesn’t a politician there turn around and say: “actually, there’s 2 or 3 that aren’t systemic and are basket cases so we’ll let them go bust/give them to their bondholders to sort out” ?? Why does every bank have to be saved (or rolled into another one that has to be saved)?

  45. I wonder how this plays out in Greece? I would think it helps the anti-austerity parties, at least to the extent that people believe Rajoy got a better deal. Then it would seem to pay to bargain harder.

    In the end, as an American, I can’t see how any of this matters. There doesn’t seem to be any overlap on the Venn diagram of economically viable and politically viable solutions. Currency unions have a pretty poor record for survival and the Eurozone wasn’t particularly well designed, so the odds aren’t good…

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