A couple days ago, Spain floated an idea to deal with their bailout of Bankia, which would have represented a back-door way for the country to print money without having control of their own currency through a central bank. It would have worked this way: Spain would agree to a debt-for-equity swap with Bankia, and then use the Spanish government debt (bonds) as collateral for cash from the European Central Bank.
The ECB would have to agree to such a scheme, of course. And there are conflicting reports about their posture. Several news outlets have reported that the ECB opposed the recapitalization scheme for Bankia. But then, the ECB said they have not given an opinion on the plan. For their part, Spain said they never formally proposed the idea. So everybody denied everything. But given the ECB’s staunch adherence to their bylaws, which disallows them financing government operations, and well as their endless concerns about credibility and precedent, it’s unlikely they would consent to the scheme.
Spain’s other option is to go to the markets to finance the Bankia bailout – they only have $9 billion in a domestic bailout fund, and rescuing Bankia could cost as much as $23 billion – but then they have to contend with the high borrowing rates that has driven the country to the brink of default. Clearly Spain’s economic situation is deteriorating, and since there is broad agreement that Spain is too big to be jettisoned from the euro, that demands action on the part of Eurozone leaders.
The release Tuesday of discouraging figures on Spain’s retail sales and exports further contributed to the sense of the country’s fragility. And the resignation of Spain’s central bank head, a month ahead of schedule, highlighted the struggle to fix long-standing problems in the country’s financial sector.
Underscoring the urgency of the situation, U.S. Treasury Undersecretary Lael Brainard arrived in Athens on Tuesday for a previously unannounced European trip that will include stops in Madrid, Frankfurt, Paris and Berlin. The purpose, according to a release, was to “meet with senior government officials in each country to discuss their plans for achieving economic stability and growth in Europe.”
There is talk of boosting the investment funds for job creation projects, but these funds are nowhere near the level needed to pull the Eurozone out of recession. Eurobonds have also returned to the head of the agenda, which would help with the near-term problem of countries like Spain being effectively locked out of financing.
But the problems in Spain suggest that Europe may not be able to wait until the outcome of the Greek elections to act.
…Another option being discussed is a banking union that would allow member countries to collectivize bailouts. Since German banks are as much at risk from sovereign debt exposure as the other countries, this may not seem as much like a fund transfer, but that’s well-hidden by the sovereign bailouts, and telling citizens that they have to rescue other countries’ banks is going to be extremely unpopular, I’d gather.




34 Comments

Support this site!
Subscribe to the newsletter
Advertise on Firedoglake
Send
us your tips
Make us your homepage
About FDL News Desk
Just one more reason we shouldn’t try to emulate European social policies. What a clusterf*ck, but I suppose they all had it coming.
10 year US Treasuries are now down 10 basis points (that’s an enormous one-
daymorning move).They are now 1.65%. It is criminal negligence on the part of the US government not to be using this opportunity to rebuild our decaying infrastructure.
By “social policy”, if you mean that we shouldn’t emulate the idea of letting a bunch of banksters and financiers run hog-ass wild, with only the most token regulation and oversight, then I’m with you.
But if you mean that we shouldn’t emulate the idea that national governments have the obligation and the right to protect and enhance the quality of life for ALL of their people, instead of just doing it for the 1%, then, you’ve got a tough row to hoe, and the current mess is unspinnable proof that in this day and age, “marketplace capitalism” is a prescription for more power and wealth for that 1%, and more misery for the rest of us.
“..It would have worked this way: Spain would agree to a debt-for-equity swap with Bankia, and then use the Spanish government debt (bonds) as collateral for cash from the European Central Bank…”
Note that the ECB’s LTRO (I and II) was the same process in reverse – banks were lent money via LTRO and then used the money to buy sovereign bonds.
The whole thing has become a circle jerk – banks bailing out countries, then countries bailing out banks. We’ve reached the “Keynesian Endpoint” here folks.
“the current mess is unspinnable proof that in this day and age, “marketplace capitalism” is a prescription for more power and wealth for that 1%, and more misery for the rest of us.”
Better choose your side wisely then. The cream always rises to the top. Or maybe the sh*t sinks to the bottom. Either way, you put in the work and your rewarded in this country. Can’t say that about everywhere.
“I suppose they all had it coming…”
Again, if you mean that the banks and corporate leeches (and the officials who are letting them control economic policies) had it coming, and are deserving of the scorn and suspicion, not to say, anger that is being directed at them, then, BINGO!
But If you mean that Joe and Jane sixpak had it coming, then I’d say that the only thing they did wrong was elect officials who believe that “I’ve got mine; fuck everyone else!” is a good catechism and play book for government policy.
Well, now that I’ve got you out of your Ayn Rand closet shrine, I’d just point out that the party of “bootstraps and hardwork” (Or, the one that MOST pimps that notion…), while in the hands of George Bush, led us into a barrel of economic shit. That Barack Obama, as republican-lite, has been willing to sustain and perpetuate so much of it, doesn’t validate it’s “viability” as a philosophy.
Also, the notion that the roughly 9% of adult americans who are still unemployed are nothing but a bunch of lazy slackers, will surely be of some interest to them. Perhaps Mitt Romney and other hard-working republicans will bring that up as a campaign issue. :o)
Incidentally, I’m glad to hear that you think that assholes like Mitt Romney, Donald Trump, Rupert Murdoch, etc., are the “cream” of america. Personally, I think that Obama, himself, is more like the corporate pond scum of america, while the aforementioned “captains of industry”, happen to be the most flagrant turds in the cesspit.
Its as simple as social evolution. People that are smarter, work harder or in some cases just lucky tend to do better than those that don’t. And there is absolutely nothing wrong with that. People should benefit or struggle with the result of their decisions. By continuing to reward the lazy and incompetent we do nothing but weaken society.
I didn’t say the unemployed were lazy slackers. The people spending 99 weeks on unemployment however are doing so by choice, not from lack of opportunity. Does that make them lazy? maybe.
Excellent statement.
WE are all so screwed. Well, not ALL. Just 99% of us.
*waves to NCG*
I’m going to ignore the troll today :)
At least I’m going to try.
Good luck with that.
Sorry to burst your bubble. Think we are probably in agreement on this one. No argument to be made against the fact that the more we prop up the weak the more weak we end up getting.
Forget tne troll. They got a replacement for Shooter, but this one is just as ignorant of the facts. The only wonder is that he can type and pump his dick with the same time. Just another loser, perhaps a casualty of the current high rate ofe unemployment. Hey, it’s a living, though a miserable one.
Your viewpoints seem to be driven by a perception that life is a competition. It doesn’t need to be. Must be a lonely existence for you.
I’m out!
If Bankia goes down, which seems now in the cards, who gets burned the most? Who is holding its debt?
If the euro implodes, we won’t escape the fall out. Just wrap your mind around one number. There is around 400 trillion dollars of credit default swaps outstanding that reference the euro. That’s trillion with a T. That was reported by Marshall Auerbach a few days ago. Now if you think that all that money pays out with no hiccup, you are from an alternate universe. This one will suffer a depression. That will include all the John Galts right here in the good ole USA. Maybe it is time not to regulate this shit but to think of some alternative economic system. This one goes from one bust to another pretty regularly. We need OWS more than ever. None of our leaders give a rats ass.
Its only a competition based on you’re own expectations. Some people are very happy with their trailer and case of miller high life. Some aren’t. No need to punish those that have different definitions of success. We all had the same opportunity to succeed from birth. Anything that happens after that is the result of choices made and a little bit of luck.
All the gamblers in the world are invested in it in one form or another.Somone is going to lose big time if the run starts. I think the ecb and the fed will pull out the stops before it all goes down. Or at least I hope .
No. It definitely is not. Trillions of CDS is not competition. It is gambling
Funny that buying insurance on risky assets is considered gambling. Here I thought it was prudence.
Not when everyone buys insurance on the same asset.
You sound like an expert on CDS. What trading desk do you work on?
Yah see, ya gots to be an expert to see da con. Good ole comprador schmartz.
Please dont feed founding fool,who has never been to Yurp,i myself was there in April,and you dont see the widespread poverty or homeless you see here….a fool and his meanderings,paid for by Kock industries
founding fool does not want to give FIRST hand evidence about the sad state of France,Italy or Spain etc.
Those countries were doing pretty well, until our robber-barons exported Reaganomics to them.
These problems are a direct result of cutting spending in what amounts to a world-wide recession. That, and the further extreme concentrating of wealth and power in the hands of a tiny elite.
Ted Rall nails the current political “flow”:
http://news.yahoo.com/comics/ted-rall-slideshow/
Surely you’re doing satire.
i did not see indigent people in the streets there…one city 2 million peeps,and a smaller region…didnt see pan handlers in the stations or airports…did not see old run down vehicles,just my observations…they have more disposable income,due to universal healthcare imo,had a root canal for 89 euros
Eugenics 101
re “there is broad agreement that Spain is too big to be jettisoned from the euro”
2 articles say they leave first: http://globaleconomicanalysis.blogspot.com/2012/05/spexit-before-grexit-six-reasons-spain.html
Thanks rjs. Interesting article.
Is that why average worker productivity has doubled in the last 30 years while wages, adjusted for inflation, have declined?
There is no link between work and rewards anymore, Wall Street sucks up all the reward.