Whither the euro?

[El Pibe]

The difference wa that this was a banking bail out not a soverieign one.

Spain was actually much more circumspect in it's borrowing than most, it's debt to GDPO ratio is way below taht of Britain's leave alone the troubled economies, though as quids pointed out the budget defecit is high.

It's problems are very different to those of the other pigs, and alot of it, like here in the early days of the credit crunch, is to do with banks' reluctance to lend causing grave difficulties for business, making it very hard to kick start growth.

[silverfox]

Sorry El Pibe, I don't accept that false distinction. A bail-out is a bail-out and I can't see a difference between Ireland's reckless banks and Spain's reckless banks. Strikes me this was a panic measure before the Greek election that has possibly made things worse.

[El Pibe]

I'm afraid the ECB, IMF et al are indifferent as to your opinions on the veracity or accuracy of such definitions.

Regardless Spain has already enacted severe austerity measures in an effort to reduce the budget deficit, so it likely that an insistence that they do so is unecessary.

[silverfox]

It's not that simple El Pibe and playing with words or using euphemisms does not disguise the fact that this money has been lent to the Spanish Government and so is really sovereign debt.

Robert Peston put it thus:

"...It would be surprising if markets did not react positively to the news that the eurozone will lend ?100bn or so to the Spanish government, so that it can strengthen its financially overstretched banks.

But since investors had been discounting such a rescue, you never can tell.

They may choose instead to focus on the considerable uncertainties and negatives associated with the bailout.

First Spain which is already struggling to reduce a substantial deficit would be adding debt equivalent to 10% of its economic output or GDP to its already sharply rising national debt.

Second by bailing out banks through semi or total nationalisations, the government is enlarging the perceived liabilities of the state, by assuming responsibility for banks' huge liabilities.

Third, if the bailout loan ranks ahead of existing private-sector loans to the Spanish government*, there is a risk that Spain will end up paying more to borrow from conventional commercial sources - which is precisely the opposite of what it wanted.

So although Spain hopes it will avoid the stigma of being classed as a failed economy by allocating all the bailout funds to its banks, it may not enjoy that luxury..."

(* ie, if the money has been allocated from the ESM (rather than the EFSF) it would be senior to private sector loans - that is, the ESM has the first call on repayments before any loan repayments to the financial markets. The position is unclear but may compound problems for the Spanish Government is raising future finance)

http://www.bbc.co.uk/news/business-18385411

Edited for typos

[Huguenot]

I sometimes wonder if you can read Silverfox.

Read what Peston says again - he says it is most likely that markets would respond positively.

The rest of his note was about an unlikely alternative outcome.

Anyway, the fact that you refuse to see a distinction between reckless government borrowing and foolish banking activites is neither here nor there.

Whilst the Spanish government is administering the bailout, it is not a Spanish government bailout.

The fact is that you can only make a bailout conditional upon non-reckless government behaviour (i.e. government spending) if it is the government that has been reckless.

It would be like a bank offering you a loan on condition that you stop speaking informed common sense - since you never have done and have no intention of doing so, it would be pointless.

Conditions on the Spanish government would be equally pointless. All the government austerity strategies are already in place, are sustained, and have been more dutifully applied than in most of the Eurozone, including Germany.

It isn't suprising that not everyone wants to label a country as being feckless just for being foreigners.

[El Pibe]

These are hardly problems unique to either Spain or the economies perceived to be failing.

What you're complaining about is the state effectively underwriting banks' operating risks, something the British gov't did for the entire industry here, not just the banks we specifically bailed out (or nationalised if you insist), to the tune of muchos billions.

It's frustrating especially as banks don't then do what we ask of them, ie improve the risk modelling and have safer business models with lower risk/rewards. It doesn't help that whilst we effectively are asking them to lend more sensibly we're also asking them to lend more full stop.

But then what's the alternative, noone has yet dared stare into the abyss?

[Huguenot]

What's the monster lurking in the abyssal depths EP?

[silverfox]

Well Huguenot, I must confess I find you something of an enigma - perhaps it's something they put in the food out there in Singapore that affects your reasoning?

"I sometimes wonder if you can read Silverfox.

Read what Peston says again - he says it is most likely that markets would respond positively.

The rest of his note was about an unlikely alternative outcome..."

Huguenot, the positive response lasted until around lunchtime BST on Monday and the unlikely alternative outcome then clicked in.

"...Anyway, the fact that you refuse to see a distinction between reckless government borrowing and foolish banking activites is neither here nor there.

Whilst the Spanish government is administering the bailout, it is not a Spanish government bailout..."

I recognise the distinction but consider it irrelevant. Spain has had to go cap in hand for a bail out because it couldn't afford to bail out the banks itself. If you consider me too illiterate or too xenophobic to grasp this issue then have a look at Ed Conway's concerns at Sky Business in his article 'Five Nagging Questions About The Spanish Bail-out':

"...What are the actual details?

All we know, so far at least, is that Spain has requested (and the European authorities have been minded to agree to) support of up to ?100bn for its banks. This is, it?s worth saying here, a bail-out, despite the insistence of the Spanish authorities that it?s not. It is a country seeking external support to keep their economy afloat..."

(my highlighting here)

http://blogs.news.sky.com/therealeconomy/Post:36cc2ebe-d677-4710-8c95-55b2330b68cf

"...Conditions on the Spanish government would be equally pointless. All the government austerity strategies are already in place, are sustained, and have been more dutifully applied than in most of the Eurozone, including Germany..."

You, and El Pibe, may well be correct on this point. However the message that has been sent to the Greeks before their election (and the Irish and Portugese) is that bail-out loans can come without stringent austerity penalties and Troika representatives controlling your budgets. This will only help the anti-austerity parties in Sunday's Greek election.

[El Pibe]

"What's the monster lurking in the abyssal depths EP?"

THe old laissez faire approach of let the banks go bankrupt and see what happens rather than the open ended commitment to constantly prop them up.

[Huguenot]

I love the recourse to Sky News, silverfox - the UK equivalent to Fox Channel.

Murdoch doesn't believe in editorial impartiality in the US, and he doesn't believe in it here.

He admitted in the Leveson enquiry that he threatened both the Tories and Labour over Europe policies, and stated it was one of two isolated areas in which he influenced his media's editorial content.

It is a matter of shame that the world's media is so untrustworthy on the issue.

[New Nexus]

Yesterday, Austrian finance minister Maria Fekter ruffled the unelected Italian PM's feather by saying "forget Spain, Italy is next in the bailout line" - a statement which as expected was promptly loudly refuted, mocked, and scorned by everyone possible: the type of reaction that only the truth can possibly generate in Europe. So far so good: after all the typical European reaction to any instance of the truth is loud screams of "lies, lies" and promptly sticking your head deep in the sand. However, this time around Italy may not have the benefit of the doubt, nor the benefit of some sacrificial replacement of a prime minister: Silvio is long gone, and at this point switching one banker figurehead with another will do precisely nothing. Which is why this morning's assessment from Bloomberg economist David Powell is spot on: "Italy would probably be forced into receiving a bailout if it were to face another two weeks like the last seven days." But the punchline: "The bad news for Italy is the country?s stock of debt is already as large as Spain?s may become after years of fiscal turmoil. In other words, Italy already is where Spain may be heading."

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/06/Italy%20Insolvency.jpg

ZH

[Huguenot]

Yes, because copy and paste is the 'new' opinion.

[????]

Spain and then Italy about to go - they and Ireland only needed Greece or Portugal in their Group at the European Championship for all sorts of headline potential from the Group of debt (GEDDIT)

[uncleglen]

The front of Private Eye says most of it

[silverfox]

"Frankly we are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy, because the European Union has a model that we may be very proud of."

Jose Manuel Barroso, President of the European Commission, speaking at the G20 Summit, responding to critics of the eurozone's crisis management with growing signs of impatience among non-eurozone G20 nations.

Make of that what you will.

http://news.sky.com/home/world-news/article/16249150

[Huguenot]

What do you make of it silverfox?

He was pointing out that brutal decisions in favour of the state are impossible in democracies as things take time, and the lectures from the US or others on fiscal management are hardly made on solid foundations.

Not unreasonable?

[silverfox]

This is what I make of it:

He was being defensive because the rest of the world are giving him and his cronies a kick up the ass and telling them to get it sorted as they are endangering the world economy.

[Huguenot]

Seems perfectly reasonable for him to turn around and say 'that's the pot calling the kettle black', no?

Besides which, 'giving hima kick up the ass' seems to imply that either he deserves it as punishment, or it will help the situation.

Neither could be further from the truth.

The delay is due to democracy, and the responsibility lies with institutional issues with banking, financing and corruption that were far outside his influence.

As for a 'kick up the ass' helping, hardly.

Having said that, I wonder if some of the 'headlines' about rash comments made from financiers and politicians aren't just really a bit of a push in the right direction?

[silverfox]

I agree. What you say is quite sensible.

The G20 meeting is showing the strains. The Brics are asking why should they pump billions into the IMF to help out European countries that enjoy a better standard of living than their own people?

[El Pibe]

Quite an interesting article. In short, Europe is the problem, Spain is the solution.

http://elpais.com/elpais/2012/07/11/opinion/1342027086_633066.html

[DaveR]

"In short, Europe is the problem, Spain is the solution."

Did we read the same article? I read it as a wake up call to Spaniards currently looking for an excuse to blame anybody and everybody else. It made the case for growth stimulus alongside (maybe even in place of) austerity, but that has already bedn articulated pretty clearly elsewhere.

The key line in the piece is surely:

"El pa?s necesita un verdadero shock de modernidad; no s?lo recortes sociales o cambios en los m?rgenes, sino aut?nticas reformas que dinamicen el pa?s y desmantelen intereses creados."

[El Pibe]

Errr.... "Hoy Europa es el problema y Espa?a (puede ser) la soluci?n."

I read that to mean that without a clear strategy from Europe, the constant firefighting serves nobody.

But real,deep structural and political reform can shock Spain out of its torpor and could serve as a model to revitalise the European economy.

[DaveR]

I wan't questioning whether that line appeared in the article, rather whether it serves as a fair summary of the point/s being made. How about:

"Europe is the problem, Spain can be the solution, if it achieves radical social, political economic change in a short timescale and against a background of unparallelled global economic uncertainty. And if the Italians and Greeks follow suit."

[El Pibe]

Ha, I was thumbing a smart phone whilst catching a bus at the time. Maybe I shouldn't have prefaced the link at all ;)

[New Nexus]

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/07-2/doyle%20Letter.pdf