Spain Still Needs a Bailout

Spain Debt Sells Despite Bailout Pressure – WSJ.com.

Flag of Spain

Here is an example of the mainstream media’s reporting of the Eurocrisis:

Despite mounting pressure for it to seek an international bailout, the Spanish government proved it can still finance itself on markets.

No such thing happened. If you have been following the Eurocrisis, you know that Spain is not selling debt to disinterested third parties looking for a good investment. The debt is being sold almost exclusively to its own banks. It’s easy to sell debt when you have a captive market.

Spanish banks are essentially dead, but they are being propped up by the Bank of Spain’s Emergency Liquidity Assistance under the auspices of the ECB. Spain sells bonds to its banks who immediately pledge the bonds as collateral for cash to prop themselves up. This action is occurring in Greece, too.

Spain needs a bailout. There are no two ways around it. A country can finance a few billion here or there, but Spain needs at least €86bn to finance maturing debt and its budget deficit for the rest of the year.

Short-term investor exuberance and hope will forestall the crisis, but the math does not change. Spain needs too much money:

https://dareconomics.wordpress.com/2012/09/06/actual-spanish-financing-needs/

https://dareconomics.wordpress.com/2012/09/17/spain-will-request-a-bailout-ii/

 

 

Advertisements

2 thoughts on “Spain Still Needs a Bailout

  1. You have a deep understanding of the fundamentals of the Euro crisis. I really do enjoy reading your blog. What is your background?

    As I understand it, once the ECB approves a central bank for the Emergency Liquidity Assistance program, a commercial bank can borrow virtually unlimited funds. If the bank can then pledge these bonds for the loans it receives, its give the Bank of Spain an unlimited printing press. Do I understand this correctly?

    Thanks,
    David

    • That’s what is happening. Greece has been able to forestall its collapse while it awaits the next tranche of troika aid. I wrote a blog post about the mechanics of what Greece and the ECB are up to.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s