No Request Means No Help

Spain’s Rajoy to seek German backing for a bailout | Reuters.

Let’s start by dismissing a common Eurocrisis fallacy that the article repeats:

Internationally he is caught between diverging pressures from Germany and France

Germany and France are not diverging; they are converging. Hollande wanted to be the President of France and had to pander to his Socialist electorate to win the election. Politicians says lots of things during elections that they have no intention of supporting when they need to govern.

Hollande and Merkel are both members of the cult of the euro. They believe that the euro is more than just a currency, but a way to drive a closer political integration of the continent akin to a United States of Europe. When Hollande suggests that Spain seek a bailout, you can take it to the bank, just not an insolvent European one, that Merkel supports this action, too.

A Spanish bailout is going to compromise the resources of Europe and the alphabet soup of funds and institutions that will be funding it. Hollande and Merkel will have to drum up support in advance of announcing a plan at the next Euro Summit in October, so they need Rajoy to request a bailout as soon as possible.

The Germans do not want to sign a blank check, so they need more information about the financial health of the Spanish banks and regions.

Always keep in mind the bailout timeline. A lot of graft, corruption  and fraud is festering within these institutions; whatever amount is announced at first will be woefully short of paying for the problem.

Germany wishes to avoid a situation where the numbers keep escalating the deeper one travels into the bailout waters due to voter backlash. Look at the Greek situation and how German voters feel about Greece today.

When Germany and France say that Spain should officially request a bailout, what they mean is that Spain will not get any money unless it agrees to Greek-style humiliation at the hands of the troika. Rajoy knows that requesting a formal bailout will spell the end of his government. He believes that they are already doing enough reforming and he wants bailout money without additional strings attached.

This argument may be true. Spain has already made deep, unpopular cuts and is poised to do more. What Rajoy does not understand is that the humiliation is what matters to the Germans. It’s part of their national psyche; if you don’t believe me, check out some German porn next time you’re at the airport.

Germany was totally destroyed at the end of World War II. Both the east and the west were rebuilt by the Russians and Americans respectively, but they had to suffer through some deprivations to obtain that help. The Germans are now repeating the cycle with their allies.

Rajoy has a better hand than one may think after examining the rapidly deteriorating Spanish financial condition. While the Spanish need to request a bailout, their Eurozone partners need them to request a bailout, too:


One thought on “No Request Means No Help

  1. No sir, I will not touch your “humiliation” meme. Translating the nature of German porn sites to infer there is something insightful revealed about that nation’s psyche is nothing short of a giant leap begging subscription to your analysis’ credibility.

    My take on the German position is that, it is venturing to enforce rules put in place by treaty agreement which largely were abused and disregarded prior to the euro-zone’s periphery blowing up, this quite possibly venturing the EMU’s dissolution sooner rather than later. By insisting that, treaty rules be abided Germany is creating conditions whereby at least those weaker EMU members might choose to leave the currency union, which event in fact might have the effect of dissolving the union entirely, an end whose occurrence the Germans with each passing day might increasingly prefer, while also not being assigned any undue blame. Likewise, by insisting treaty rules be enforced Germany is acting to forestall any new, extraordinary demands on its resources needed to keep the EMU intact.

    Now, what to make of last week’s report that, Merkel had communicated her desire to both Rojoy and Monti that, both nations postpone their requests for bailout? Seems to me that, such flexibility as would have Germany acceding to an EFSF and and ESM is being signaled to have its limits.

    Bailout junkies whose zero due diligence exercised in the course of stuffing euro-zone banks with a mountain of garbage ever since the euro came to be, the likes of whom have been celebrating Germany’s submission to extraordinary mechanisms needed to keep up appearances of the euro-zone’s solvency, could be acting to blow up Spain and Italy at precisely the moment when the ESM’s funding begins in earnest subsequent to the German constitutional court’s ruling next week. Merkel might be telling the world “think again,” indicating the German commitment is not going to be open ended. However, this won’t prevent the ECB from going into further hyperinflation mode buying short-dated sovereign debt (claiming it is within their treaty-established mandate to do so), which act surely will not win friends in Germany. Yet there will be nothing the Germans can do about this, save leave the euro. Albeit this is unlikely to happen at the current moment, as the political heat Germany would take as a consequence surely will prove unbearable, the ECB’s hyperinflationary policy intentions will only serve to delay the inevitable collapse of the EMU by a few years at the very most.

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