Ay, Caramba! Spain Asks for a Whoppin' Bail Out

eurozoneWell, it's happened as we earlier said it would. Spain is getting a bail out, worth €100 billion. Guess where that money is going - directly to Spanish banks! The loan is purely to recapitalize the banking system and to be given to Spain's FROB, a financial restructuring fund. From the Eurozone press release:

The Eurogroup has been informed that the Spanish authorities will present a formal request shortly and is willing to respond favourably to such a request.

The financial assistance would be provided by the EFSF/ESM for recapitalisation of financial institutions. The loan will be scaled to provide an effective backstop covering for all possible capital requirements estimated by the diagnostic exercise which the Spanish authorities have commissioned to the external evaluators and the international auditors. The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to EUR 100 billion in total.

The Eurogroup considers that the Fund for Orderly Bank Restructuring (F.R.O.B.), acting as agent of the Spanish government, could receive the funds and channel them to the financial institutions concerned. The Spanish government will retain the full responsibility of the financial assistance and will sign the MoU.

What matters most are the terms of the loan. Will Spain be forced into austerity measures that guarantee to sink their economy further? Below are some excerpts that give hints and clues from the press release. The Eurogroup is the Eurozone, and these are the financial ministers of the European Council.

Following the formal request, an assessment should be provided by the Commission, in liaison with the ECB, EBA and the IMF, as well as a proposal for the necessary policy conditionality for the financial sector that shall accompany the assistance.

Policy conditionality for the financial sector might imply Spain escapes austerity measures forced upon her citizens, or it might be similar to what Greece, Ireland and Portugal have already faced.

The below excerpt implies the Eurozone is plenty happy with the draconian budget cuts Spain has already implemented.

The Eurogroup notes that Spain has already implemented significant fiscal and labour market reforms and measures to strengthen the capital base of the Spanish banks. The Eurogroup is confident that Spain will honour its commitments under the excessive deficit procedure and with regard to structural reforms, with a view to correcting macroeconomic imbalances in the framework of the European semester. Progress in these areas will be closely and regularly reviewed also in parallel with the financial assistance.

It does seem, at least from the Eurozone who will be loaning the money, Spain is escaping more austerity measures on the economy as a whole.

Beyond the determined implementation of these commitments, the Eurogroup considers that the policy conditionality of the financial assistance should be focused on specific reforms targeting the financial sector, including restructuring plans in line with EU state-aid rules and horizontal structural reforms of the domestic financial sector.

We invite the IMF to support the implementation and monitoring of the
financial assistance with regular reporting.

We have some additional quotes via BBC, which also suggest Spain itself won't come under the austerity axe.

Spain's Economy Minister Luis de Guindos said his country would shortly make a formal request for assistance.

He emphasised that the help would be for the financial system, not the economy as a whole. "This is not a rescue," he said.

"This is a loan which is given in very favourable conditions, which will be determined in the next few days. But they are very favourable - much more favourable than the market ones," Mr de Guindos told a news conference.

Mr de Guindos said there would be conditions attached for the banks receiving the loans, but there would not be "micro-economic conditions" for Spain.

Yet, CNBC is reporting Spain gets no such luck and will pay the same interest rate and terms as other bailed out nations.

The funds will be provided through the EFSF/ESM at the same interest rates which apply to funds provided to other program countries.

All hail the banks and bail them out at all costs. It's unclear what Spain plans on doing, keeping more financial TBTF behemoths alive, or really reforming their financial sector.

Notice the Eurozone mentions the IMF in their press release. The IMF is probably biting at the heals of Spain, out to demand more austerity. The IMF Spanish banking stress test results concluded Spain needs €37 billion to save their banks. Yet we have a very clear statement Spain will not seek a bail out from the IMF.

Spain will not seek IMF assistance - again unlike its three bail-out predecessors.

It's clear Spain is getting somewhat of a break on this bail out in comparison to Greece, Ireland and Spain.

Unlike the three other bailed-out eurozone countries (Greece, Ireland and Portugal), Spain will not be submitted to a full-blown programme with inspectors regularly checking the implementation of reforms.

Yet can Spain hold out and really fix their financial sector while avoiding the neoliberals and their never ending austerity punishment axe?

So far so good as IMF chief Christine Lagarde says nothing, simply offering monitoring in this IMF press release. The Spain government has reiterated resounding no austerity required statements as well.

The assistance would not require new austerity measures or economic-related conditions imposed on the Spanish government.

The Spanish government, added de Guindos, "did not come under pressure at all" in order to seek the financial assistance, which would encourage European financial integration and boosting eurozone's economy.

The next question is this enough and what exactly will Spain do to reform their financial sector beyond doling out mo' money to these money sucking beasts that roam the financial globe.

godzilla

Contrarian Zerohedge says not so fast and announces Spain is the new Greece. They note the insolvency of the facilities from where the Spanish loan would come from:

De Guindos, Schauble and the Eurogroup, all announced that the sole source of cash would be the ESM and/or the EFSF. The problem with this is that the ESM has yet to be ratified by Germany, whose parliament said previously it is sternly against allowing the ESM to fund a direct bank bailout, something which just happened. Thus, the successful German ESM ratification vote, whenever it comes, and which previously was taken for granted, now appears to be far more questionable.

Which leaves the EFSF. The problem with the EFSF is that there is about €200 billion in dry powder. And this includes the Spanish quota of €93 billion, which we can only assume is now officially scrapped.

It is also true our bail out world tour will be next stop, Italy.

The fundamental problem, no defaults, no hair cuts on insolvent banks, then countries, has to result in a game of musical chairs. Someone, somewhere and no doubt it will be regular people, is gonna be left holding the bag.

To be continued....

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Comments

More "solutions" that solve NOTHING!

More endless talk, more "solutions" that are completely useless and obviously crap to anyone who has a brain and any integrity. Because I don't work for a govt. or collect a salary for being a bankster, or politician, or other assorted dufus/shill, let's just state the obvious: THIS IS MORE USELESS TALK AND PONZI BS!
Come on, how many meetings and trillions of dollars are used to funnel money from one bankrupt country to the next country to delay by a matter of months the inevitable collapse?
Germany is in a recession or going into one, and that's the only Euro country that has any $ that everyone sees as a savior. France is broke and yet wants to reduce retirement age. PIIGS are busted and have been for years now (despite CNBS' late realization). IMF is funded 20%+ by the USA and the USA has unemployment at 20%+ for 4+ years now with a budget deficit in the TRILLIONS! The BRICS are slowing down and China is cutting interest rates despite massive housing bubbles that will make the USA 2007- look like kids' play.
So how can all these bankrupt, massively unemployed, broken countries stop a Greek, or Spanish, or other PIIGS, or BRICs, or USA redux to the -nth power the likes of which the world hasn't seen that is coming this summer or fall? They cannot. It's all a sick joke that the average man and woman will see only in their $ (if they have any) being siphoned off to prop up bankster scum and their bonuses for a little more time so that they can escape to the Caymans before the 99% reap the whirlwind.

-KURTZ

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yeah well

Here, the big task is when to bother to write about the latest press release. I want defaults, massive haircuts, kind of a stop, ban a host of derivatives, cancel the contracts and then restart, similar to how FDR shut down the banks, enacted a host of laws and the re-opened them.

Fundamentally we have nation-states taking on insolvent banks and their debts, which in turn makes them run to insolvency, all the while sucking the life blood out of various economies and ballooning deficits as a result.

Germany's economy is treading water, with ~ 1% annual GDP growth, projected for 2012/2013. In the U.S. we need about 2.0% annual real GDP just to "keep up", to "maintain", I'd claim, it's definitely not zero, so I suspect the 1% GDP of Germany really implies stagnant.

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holdin' the bail out bag

Now the reports are pouring in on how eventually this will be on the backs of Spanish citizens. Many are pointing to the European stock market open. We'll probably write another article as the dust settles and the real terms, consequences become evident. All we have know are press releases.

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