I have been writing for a couple of weeks that Spain would not ask for a bailout before regional elections on October 21 and was not alone in this prognostication. I was wrong.
The thinking was that Rajoy wished to appear strong before these elections, and Spain had enough money to last until then anyway.
It seems that Spain does not have as much money as the mainstream media was reporting. On September 6, I wrote an analysis of the Spanish debt situation:
I came to the conclusion that Spain needed about €91bn to finance its budget deficit and maturing debt between now and the end of the year. Spain has sold some debt since I wrote the report, so the number is now down to €81bn. If we subtract €20bn of cash on hand in the treasury, Spain needs €61bn for the last quarter.
There is no way that Spain can sell €20bn per month into these markets between now and New Year’s day. It has only been able to sell about €14bn per month this year, and the majority of this issuance took place under more favorable conditions in the first quarter.
The Germans are continuing their pattern of promising to do everything to save the euro. Talk is cheap, and they continue to prevaricate rather than putting their money where their mouths are. Just a few days ago, Germany and the northern tier rolled back their promise of aid for ailing periphery banks:
Is Germany merely stalling to spring the bailout votes on its electorate at a more propitious time? Is it waffling because it is cutting the chord on these bailouts and wants time to prepare itself for the shock? Or does Merkel have something else up her sleeve like a country-wide referendum on the eurozone and bailouts?
We’ll find out soon.