What could possibly go wrong in Spain?
Perhaps we should ask what could go right?
Super Mario Draghi is trying to stuff money down that other not so super Mariano’s throat but that Mariano (Rajoy), the Spanish Prime Minister is having trouble digesting the significant loss of sovereignty that comes with Super Mario’s freshly printed paper.
You see…the deal goes like this. We’ll bail you out with our funny money but you have to let us tell you how to spend it….both now and in the foreseeable future. Basically Spain will be “under new management”.
Because of Super Mario’s recent “whatever it takes” pronouncement, Spanish 10 year bonds are currently around 5.7% but could quickly spike back up to their recent highs above the dangerous 7% mark, especially if the markets see Mariano choking and spitting out Super Mario’s offer.
Meanwhile, the auditors Deloitte, KPMG, PwC and Ernst & Young are due to present their full reports on the capital needs of Spain’s financial sector in September. The findings of this report will be used to determine the exact amount the Spanish banking sector will need to borrow from the EZ’s bailout fund, the European Financial Stability Facility (EFSF).
What a fun job that must be? Why, they were having so much fun they needed a few extra months to get it done. It was originally due in June. There must be much to see in those lovely banks.
What will they say? Or more appropriately…how much will they say…the banks need?
They hope it will be less, rather than more, after they quarantine the worst of the distressed assets into the much reviewed and revered “Bad Bank”.
Hey…wait a minute…didn’t we already go down this road with that recently constructed Spanish monstrosity known as Bankia.
At Bankia, the financial geniuses took 7 regional savings banks (known as Cajas) and consolidated them into what was then effectively a “Bad Bank”…although they tried to pass 7 ugly sisters off as one beautiful damsel in just a touch of distress.
Initially they said that they would make over 320 million in profit from transforming these ugly country sisters into a national beauty.
Apparently they needed more plastic surgery than the bankocrats originally planned because the 320 mill in profit soon turned into a 4.3 billion loss (we’re talking euros here). Since then they have continued to apply financial makeup like no one’s business but Bankia is unfortunately still very ugly.
Woops….there goes another 6 billion, just announced yesterday. Pig lipstick must be very expensive these days.
http://in.reuters.com/article/2012/09/10/spain-frob-idINL5E8KAIY920120910
In June this year, the Eurocrats said that the first bad bank (aka Princess Bankia) was not bad enough and in addition to another badder bank, the whole banking system might need an injection.
30 billion was mentioned as a useful number. Within no time at all…a week or so…that number had ballooned to 100 billion. By September, we are talking more like 300 billion. A simple question…when does this madness stop?
So, back to our sparring partners, Mario and Mariano.
Maybe not so super Mariano Rajoy does not want to lift the Spanish veil for Super Mario to see the faded beauty that was once Spain’s economy.
Perhaps he is scared of what really lies beneath. After all, his first beauty, Bankia, was not so pretty after all. Perhaps the whole system, from Andalucia to Catalona, is rotten beyond salvation. Rotten beyond even the best facelift and the tightest tummy tuck.
And with Spanish unemployment now looking to rival that of Greece, it is only a matter of time until the Molotov cocktails start to be shaken.
If all of that is not bad enough, the truly scary part is the tremendous flight of capital from Spain, despite what basically amounts to recently imposed capital controls. Capital goes where it is treated best and fairest. Spanish capital is scared, very scared. It is making a run for the border!
Spain is in deep doggy dodo and will need more than bad banks and plastic surgery.
It will need a full scale bailout. Fortunately, Super Mario is up to the job…as long as Senor Rajoy is prepared to fully lift the veil. Ultimately, not so super Mariano will have no choice and the full ugliness that is Spain will be revealed.
As they say, the pain of Spain will soon be plain.
But it will be poor little Greece who inadvertently suffers the consequences of a Spanish bailout, as they get thrown out of the EZ limo and under the default bus…an example of what happens to those who won’t play ball.
That is why they need a Troika. One drives the limo, one opens the door and the third does the pushing. Remember, they are driving around Greece this September, too.
