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Spain announced the results of a stress test of its banks, finding a €60 billion shortfall, in line with estimates.
It’s important to understand that there are two bailouts as it pertains to Spain. The bank bailout, meant to cover this €60 billion shortfall, has already been requested and approved. Europe has reserved around €100 billion for this purpose. The other bailout, a bailout for Spain’s sovereign debt, has not yet been requested, much to the consternation of top European officials.
The EU Commission welcomed the results of the stress tests in a statement, saying that state aid will be determined in the coming months and that banks now need to file recapitalization plans.
The EU went on to say that the banks will be required to either restructure or recapitalize, and that it sees the recapitalization of the first Spanish banks by November [...]
Spanish officials asserted that the scenarios employed in the stress tests are very unlikely to play out – deputy finance minister Fernando Jimenez Latorre said Spain may only need 40 billion euros from the EU to shore up its banks.
Spain may be too optimistic even in its adverse case scenario, actually. So I would err on the side of more, not less, money being needed.
So European officials are generally pleased over the bank bailout terms; now they want to see the conclusion of a sovereign debt bailout. That would be the wrong way to go, according to Paul Krugman. Protesters demonstrated against more austerity in these countries, the eventual result of any bailout, for the right reasons.
Much commentary suggests that the citizens of Spain and Greece are just delaying the inevitable, protesting against sacrifices that must, in fact, be made. But the truth is that the protesters are right. More austerity serves no useful purpose; the truly irrational players here are the allegedly serious politicians and officials demanding ever more pain.
Consider Spain’s woes. What is the real economic problem? Basically, Spain is suffering the hangover from a huge housing bubble, which caused both an economic boom and a period of inflation that left Spanish industry uncompetitive with the rest of Europe. When the bubble burst, Spain was left with the difficult problem of regaining competitiveness, a painful process that will take years. Unless Spain leaves the euro — a step nobody wants to take — it is condemned to years of high unemployment.
But this arguably inevitable suffering is being greatly magnified by harsh spending cuts; and these spending cuts are a case of inflicting pain for the sake of inflicting pain.
Reducing the debt through budget cutbacks only exacerbates the economic situation. And that in turn reduces investor confidence even more than a reduced ability to repay financing would. Employment is the real disease and austerity is no cure.
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Quite why the Germans and French don’t understand that the Euro is finished is beyond me. Spain, Portugal, Italy, Greece, etc., need their own floating currencies to get through this.
The Euro was a technocratic vanity project.
Also, it helped German exports.
Almódovar blogs, mainly on the control of the narrative surrounding the demonstrations at the Congress in Madrid (though he does drop a little something else in there).
The purpose of the bailouts is to ensure the bondholders, especially the banks, are paid. But the banking problem is another subject.
The stipulation that, in order to receive a bailout, the debt must be reduced is exactly the opposite measure that’s needed to actually reduce the debt.
Cutting spending by job cuts, pension cuts, etc. reduces money in circulation – money that creates demand, buying power.
Government spending does not put money into a black hole in which it’s lost forever. Just the opposite.
When will the Very Serious People who make these stipulations, and who all have very lucrative jobs, realize that punishing people with “austerity” has not and will not work?
Whether the euro will survive this debacle is a question.
Bailing out the Spanish government = bailing out PRIVATE Spanish banks
Why more governments don’t do what Iceland did is somewhat understandable. All the rich people who provided money to the banksters would be broke so the poor Spanish people that didn’t cause this mess get to pay for it:
http://blogs.reuters.com/felix-salmon/2012/06/10/why-didnt-europe-bail-out-spains-banks-directly/
Sound familiar? It should, one of the latest studies indicates that the American bank bailout cost $29 trillion (trillion with a T!):
http://www.ritholtz.com/blog/2011/12/bailout-total-29-616-trillion-dollars/
So when you hear someone gripping about Social Security or Medicare going broke, just remind them that PRIVATE Wall St and TBTF banks have cost us $29 trillion in the last four years. That amount would have funded Social Security and Medicare for a long, long time.
Amen. It was bound to fail. Giving up your national/economical sovereignty to faceless technocrats is never a good idea.
The only question that matters is: Will Capitalism escape the latest crisis of its own making this time?
This “free market,” make as much money as you can no matter what the social price may be, economy simply does not work in the best interests of either the survival of the human species or of the planet.
It can’t and won’t last. We really need something else.
Now.
You guys still don’t get it .DD correctly said that austerity creates debt as opposed to reducing it ,yet you think this elementary deduction in abstract reasoning escaped GS and the IMF,and every central banker in the G-22 ,and all the politicos with whom they negotiate? Nobody has failed ,and austerity has been a smashing success in seizing assets via the privatization opportunities it creates by hobbling economies .Germany has garnered pledges for over 600 tons of sovereign gold ,placed legal claims on shipping ports and trillions in public assets that can give monopoly leverage over water ,energy ,communications and other positional and static assets.
When everyone forages through dumpsters ,I guess there will be garbage banter about how clueless and misguided all the elites ,their corporate lawyers,and their spin doctors remain .Absolutely amazing .
That’s a very cynical view of the Troika’s tactics, but that’s very much the way it’s worked.
However, I think the main intent of their strategy has been to save the banks at all costs.
Cynicism isn’t a bad thing ,unless you dislike Gore Vidal .Hedges ,Hitchens et. al. There is nothing I said that would conflict with your contention .All the central banks and the international bankster elites for whom they work , and to whom I referred ,are rebuilding their reserves and collateral bases by looting countries of their assets and hence turning them into coloniesThis is the only way to humble citizenries to accept the end of their nationhood so a fiscal union can merge under the rule of G-22 elites .
Obviously I’m strictly referring to elites when saying Germany is running a circular finance scam by imposing austerity to trigger capital flight from the peripherals into their banks ,and hence being a crypto-reserve currency.
Im rocking some new knowledge on you ,so I will be glad to respond to any questions.,but my initial comment was that these gangsters know exactly what they are doing , will likely hyper-inflate the process ,and if the whole thing blows up ,they still win ,because of the same moral hazard socializing the same people who are also cluster fucking us .
Well,imhotep ,I m gong to retire.I believe we only disagree insofar as believing the troika is guilty of premeditated crimes against humanity ,including innumerable murders ,hate crimes ,and immeasurable death and hardship .
You find it incomprehensible that I could be so perversely cynical and I find it incomprehensible that you still need to believe their system and hence our system remain well-intentioned and deeply care about are welfare .I know such boy-scout conformity sent millions to death camps .These were mostly very smart people ,yet they could not change their belief in a system that was betraying them.
I hope you are right ,but I continue assuming you are wrong ,if only because the evidence so far is that we are becoming indentured slaves to the corporate state .