Death Star Economics



It’s not you, it’s Spain

When you hear people say the eurocrisis is like a constant up and down, then what they really mean to say is that bad things are up and good things are down. Today that means that Spanish and Italian bonds yields went through the roof and business confidence is down (chart here) all over the currency union. It’s not a great day. But at least the sun is shining.

Right. So about Spain. Let’s get this straight. On Monday, prime minister Mariano Rajoy said he still doesn’t need any help from the EU in cleaning up his banks/country, but he would much appreciate the EU to keep Spain’s borrowing costs from rising. That, in case you were wondering, is not considered ‘help’. It’s totally different. Bankia, Spain’s fourth largest bank, got its €19bn bailout package signed off last Friday, which is a more or less a nationalization. And Spain does still have some €9bn lying around in its Fund for Orderly Bank Restructuring, or FROB, the grossest sounding acronym the eurocrisis has brought us yet. WSJ explains:

The restructuring fund can issue more debt, but Spain’s borrowing costs have spiraled higher at recent auctions, while demand has fallen, limiting its efforts to stock up on capital. That leaves the government short when coming up with the funds needed to prop up Bankia. A government spokesman said Spain could get around that problem by giving Bankia debt securities either from the treasury or from the FROB instead of cash. The bank would then use these securities as collateral to raise funds from the ECB‘s lending facility.

Now the FT reports that the ECB has rejected this idea as crazy and untenable, because it could breach a clause preventing monetary financing in the ECB’s handbook. But what do you know, they denied it on Twitter.

And as though that wasn’t confusing enough, Zerohedge (or JP Morgan rather) says the FROB is actually down to €5.3bn and Spain will need €350bn in bailout money to make it to the end of 2014 AND recapitalize its banks. Headache, headache, headache…

Have we talked about Ireland yet? No, and we haven’t in a while. Ireland is voting on the EU fiscal pact tomorrow. Alphaville points out that, historically, the first round of referendums have lead to a ‘no’ vote, but this time around there will only be one round…

The Irish Examiner argues that tomorrow’s referendum is an “illusion of democracy”, amusingly ending with this sentence:

Ireland is too small to hold the EU to ransom – or even, as the aborted attempt to get a writedown on bank debt has shown, to bargain – and as long as they’re paying the bills we’ll continue to dance to their tune.

Reminds me a lot of my father saying “as long as you put your feet under my table” when I was growing up.

Finally, also on Zerohedge: Waiting for Godot, existential eurocrisis edition. Worth a read, if only to laugh about the reality of European politics resembling the theater of the absurd. read article

So long.


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