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The Spanish crisis 2.0 this weekend.

El País has:

The Spanish banks need between 51 and 62 bio. EUR in capital to remain solvent in the stress-test ordered from independent auditors by the Spanish Ministry of Economics. This figure will be the basis for the formal rescue application. The three largest banks Santander, BBVA and Caixabanca do not need further capital in even the most adverse circumstance.

According to the auditors. Furthermore two thirds of the capital need is supposedly concentrated in the already nationalized banks .

The figure is much under the promised 100 bio. EUR which the incorrigible cynic Wolfgang Schäuble guesstimated. Which number is more correct remains to be seen.

The central problem is that the Spanish Ministry of Economics figure smacks of being tailored to desires:

1) The claim that the three largest do not need help is almost to convenient to be true. No. 4 is Bankia.

2) The other claim of that 2/3 of the problem is already being taken care of makes ones toes curls with incredulity – based upon experience from Bankia.

Indubitably the Spanish government would dearly like the problem to be so isolated. Though a rescue would need Spanish government guarantee it should in principle keep the Spanish nation from having to ask for a rescue of the Spanish nation. A rescue of the latter type would mean conditions – probably much like the ones Greece has had to admit to.

Handelsblatt has:

The IMF figure was 40 bio. EUR and economists had said 60-80 bio. EUR.

Irish Times has:

Quote:

Ms Lagarde said euro zone governments should allow the direct recapitalisation of banks by Europe’s bailout funds, a measure Germany rejected only two weeks ago when Spain sought emergency aid for its banks.

Comment: Off course Germany refused. Not to put too fine a point on it: Why should Germany just donate money so that the Spanish government could proceed with its notorious irresponsible lack of policies?

Quote:

Ms Lagarde said immediate steps in this direction should complement longer-term measures to establish a banking union and greater fiscal integration. She also called for more risk-sharing in the euro zone, an implicit reference to debt mutualisation. This too is rejected by Germany.

Comment:

Why should Germany guarantee for the debt of other countries? That would be tantamount to a gift as it would give Germany no ability to ensure the necessary reforms were carried through in f.i. Spain. Take a Greek or Spanish government’s claim on face value? That would go against all experience.

It should be noted that the Euro was far from a German invention; but a price paid for the German reunification. The German resistance to the Euro at the time was simple lack of confidence in the ability and sincerity of “certain” governments – a suspicion confirmed by events.

The fears that the Euro may crash are not quite getting the picture:

Some countries may crash, but that would not alter the Euro as such. Any sovereign nation – or rather anybody – may issue bonds in any currency if they please. If these bonds find any buyers? That is a different matter all together.

The problem is rather the investors that once again grant credit without thinking. Normally a sovereign government has ability to tax its citizens and businesses and is thus regarded as more creditworthy than other bond issuers. This is another occasion where investors whine because they lose money to their own stupidity: Had they seriously thought Greece would honour their debt? How naïve! The thought never occurred to them even in their worst nightmare. The problem with sovereign nations is that banks normally don’t have a division of marines on call to collect debt in default.

But still investors again and again lend money to nations they can’t even find on a map – the bonds yield enormously – that is if they yield at all: How do you foreclose on Congo or Nepal?

It is a myth that nations can’t go bankrupt.

Now Italy whines:

Handelsblatt has an interesting piece on this:

Italy wants the ECB to buy sovereign bonds when their interest rate reaches a certain critical level.

Monti’s (Italian premier) initiative was interpreted as an attempt to avoid implementing reforms and savings AND avoid the stigmata of being under EZB administration.

Comment: Of course it was! The problem with that is that the interest rate might be going through the roof for a reason: The investors don’t think the government has any particular desire to pay back.

Others have their doubt too. Quote:

“We don’t need constant new public discussion as if we hadn’t already made precise agreements”, said Bundesfinanzminister Schäuble. He pointed to the possibility of the ESM to buy bonds on the secondary market:”… but ONLY after the application of a country and after agreement upon a suitable adjustment program.’’ You shouldn’t: “time and again create totally unrealistic expectations” – just to pacify markets.

Servility was never Schäuble’s strong suit.