Spain and Italy Euro

A busy weekend ahead in Spain.

El País:

Frankfurter Allgemeine Zeitung:

There remains very little doubt, that Spain can’t handle their situation on their own. Rumors talk about this weekend, but others state: “Not so fast”.

 The question is now HOW the European Union should rescue Spain.

The basic problem is how to avoid that the good that has been done with reforms of the Spanish economy is destroyed by a collapse of the banks. That is: How can you make the banks fold without folding Spain!

The Spanish Prime Minister Mariano Rajoy’s situation is uncomfortable enough as it is – slashing public budgets – but if he has to rescue banks as well it will be downright intolerable. When you ask for help the first question the rescuers ask: “How bad is it?”

The truth is Rajoy and the Spanish government does not have the foggiest notion – and they admit that openly. They await the report from the independent foreign auditors, which should be ready next week or so. You can assign all the blame you want to Spain: They have been too tardy, they have been satisfied with cooked books and lax (to say the least) in their bank inspection – but all that is not helpful at the present stage – the task now is to insure there will be plenty of time to stoke up the hot coals later.

The figures change daily: The latest is that two other banks (beside Bankia) in the Fondo de Reestructuración Ordenada Bancaria (FROB), the bank trashcan: Catalunya Caixa und Novagalicia need a further 9 bio. EUR. That is not an information level you approach the EU with – forget harsh words; but you won’t get any commitment from anybody based on unsubstantiated guesswork.

The development seems to be, that there might be a recapitalization via the FROB, and NOT via the Spanish government. That would – according to the Germans – demand an adjustment to the rules of the EU. On the other hand there are arguments for Spain being “a special case”: Primarily that they are on the path to economic redemption, secondly they are comparatively honest – so they are in a position to receive some sort of “Marshal-plan” aid.

If that goes through in some shape or form, there will be no Spanish banks, but enclosed into an EU bank trash can. Spain will pay the losses eventually (most of them), but without separating the financial sector from the economic Spain will never be a functioning country again.

This does not sit well with the idea of a sovereign Spanish state; but the government seems more or less resigned to the realities. If the Spanish banks are taken over by the EU, Spain can then start taxing their pension funds and repatriate the tax-evaders.

It will be the first step in closing down the European banking sector as an independent power mongering factor. Banks will still exist to funnel short term deposits into longer term business loans and credits; but the financing of housing will probably be bypassing the bank and into the hands of pension funds etc.