Zunehmende Kakophonie in der Eurozone

Zunehmende Kakophonie in der Eurozone

Nach der stümperhaften Idee der spanischen
Regierung, Bankia mit Hilfe ihrer
Staatsanleihen zu rekapitalisieren, hat sie
jetzt den Vorschlag gemacht, stattdessen
auf den Europäischen Stabilisierungsmechanismus
zurückzugreifen. Deutschland lehnt
diesen Vorschlag ab und insistiert, dass
EFSF sowie ESM Regierungen und nicht
Banken unterstützen sollen und dies nur unter
strengen Auflagen. Italiens Premierminister
Monti liess derweil verlauten, «die fehlende
Schnelligkeit» erhöhe die Ansteckungsrisiken,
und die deutsche Bundeskanzlerin
sprach von einem Zeitrahmen von «fünf bis
zehn Jahren», um die Schwachstellen in der
Europäischen Währungsunion zu beseitigen.
Im Gegensatz dazu wird EZB-Präsident
Draghi ähnlich ungeduldig wie Monti. Er
meinte, «ein riesiger Geldtopf ... den nie-
mand anrühren darf», sei wenig sinnvoll. Derlei
Unstimmigkeiten unter hochrangigen politischen
Entscheidungsträgern dürfte das Anlegervertrauen
kaum steigern.

Spanien und sein Bankensystem
rücken europäischer Unterstützung
näher
Die spanische Regierung hat schliesslich die Rekapitalisierung von
BFA bekannt gegeben. Von den EUR 19 Mrd. erhält Bankia EUR
12 Mrd., die voll von BFA gezeichnet werden, was für die jetzigen
Aktionäre eine massive Verwässerung ist. Damit kann BFA-Bankia
bei seinen Immobilien- und Kreditbüchern die erforderlichen
Abschreibungen und Rückstellungen vornehmen. Die hohe Menge
der bei BFA-Bankia nötigen Rückstellungen wirft jedoch Fragen
auf, die die Rückstellungs- und Kapitalbedürfnisse des gesamten
spanischen Bankensystems betreffen. Aus diesem Grund tun
sich in Bezug auf den erwarteten Refinanzierungsbedarf des spanischen
Bankensektors unserer Meinung nach zwei Szenarien auf.
Im Basisszenario beziffern wir das Kapitaldefizit der spanischen
Banken auf EUR 75 Mrd. Bei Annahme höherer Wahrscheinlichkeiten
von Kreditausfällen, die den konservativen Schätzungen
von BFA-Bankia entsprechen, gelangen wir zu einem Kapitaldefizit
von EUR 84 Mrd. für den gesamten spanischen Bankensektor.
Die grösste Unsicherheit gilt jedoch der Frage, wer letztlich
die nötigen Mittel bereitstellen soll, um den Sektor zu rekapitalisieren,
mehr noch als der genaue Umfang der benötigten Kapitalspritzen.
Hier gibt es mehrere Optionen, darunter auch die indirekte
Beteiligung der EZB sowie die Verwendung des ESM. Bei der
zweiten Option würde die regulatorische Kontrolle des spanischen
Bankensektors jedoch auf EU-Niveau übergehen. Kapitalspritzen
haben in jedem Fall verwässernde Folgen für die Bankaktien, weswegen
wir spanische Inlandsbanken weiterhin nur zurückhaltend
beurteilen. Darüber hinaus müssen befriedigende Rekapitalisierungslösungen
schnell gefunden werden, um Einlagenabflüsse
der Kunden einzudämmen und den Aufwärtsdruck der Renditen
bei spanischen Staatsanleihen zu lindern. Weitere Informationen
finden sich in unserem am 31. Mai 2012 publizierten Research
Alert «Spanien und sein Bankensystem rücken europäischer Unterstützung
näher». (01.06.2012)

CS Research

Ctalunya: Valores en circulación

http://www20.gencat.cat/portal/site/economia/menuitem.6135b456613b7f9af813ae92b0c0e1a0/?vgnextoid=e554590e7231d210VgnVCM1000008d0c1e0aRCRD&vgnextchannel=e554590e7231d210VgnVCM1000008d0c1e0aRCRD&vgnextfmt=default

Catalunya: Debt in currencies outside EMU (millions)

Debt in currencies outside EMU (millions)
XS0450536791 1.500 09/16/2014 2.96 03/16/2012 6 3,000.00 JPY 22.54 EUR
CH0105004060 2.135 10/01/2014 3.01 10/03/2011 12 350.00 CHF 305,97 EUR
XS0457698875 1.445 10/22/2014 3.06 10/24/2011 6 11,000.00 JPY 84.84 EUR
CH0104976649 2.315 09/10/2015 3.95 09/10/2012 12 50.00 CHF 32.96 EUR
CH0104976615 2.355 11/10/2015 4.12 11/10/2011 12 50.00 CHF 32.96 EUR
CH0110411532 2.750 03/24/2016 4.48 03/26/2012 12 150.00 CHF 131,13 EUR
Deute Públic 6.250 12/17/2018 7.22 12/15/2011 6 200.00 USD 170.96 EUR
XS0449850634 2.965 09/08/2039 27.96 03/08/2012 6 18,000.00 JPY 134.88 EUR
TOTAL 916.24

Catalonia, which represents one fifth of the Spanish economy, has more than 13 billion euros in debt to refinance this year, as well as its deficit.

Spain Just Gave Us a Glimpse Into the True State of the EU Banking System

Submitted by Phoenix Capital Research on 05/31/2012 13:55 -0400

• Borrowing Costs
• Budget Deficit
• default
• European Central Bank
• Nationalization
• Sovereign Default
• Unemployment
• United Kingdom

The following is an excerpt from my most recent client letter.

In case you missed it, Spain just gave the entire world a glimpse of what’s happening “behind the scenes” in the financial system.

I am of course referring to the Bankia nationalization,  the largest bank nationalization in Spain’s history.

Bankia was formed in 2010 when the Spanish Government merged seven insolvent cajas  So it’s no surprise that Bankia was a trainwreck waiting to happen… at least to anyone with a working brain.

However, both the bank and the Spanish Government decided to maintain the charade that the bank was in great form right up until it collapsed (only one month ago Bankia was talking about paying its dividend).

On May 9^th the Spanish Government stepped in to nationalize the bank. Its first step was to convert its (the Spanish Government’s) €4.5 billion worth of preferred shares to common shares, thereby taking a 45% stake in the bank.

Then Bankia announces €17 billion of new write-downs as well as €7 billion of mark-downs on investments, thereby rendering the bank insolvent. It also revised its 2011 results from a €309 million profit to a €3 billion LOSS.

The end result… Bankia just received a €19 billion Euro bailout, the largest in Spain’s history. That’s not the problem however. The REAL problem is that Spain itself is broke…

…so where is the €23.5bn for the Bankia rescue going to come from? The state's Fund for Orderly Bank Restructuring (FROB) is down to €5.3bn, and there are many other candidates for that soup kitchen.

Spain must somehow rustle up €20bn or more on the debt markets. This will push the budget deficit back into the danger zone, though Madrid will no doubt try to keep it off books – or seek backdoor funds from the ECB to cap borrowing costs. Nobody will be fooled…

The Centre for European Policy Studies in Brussels puts likely write-offs at €270bn. We could see Spain's public debt surge into triple digits in short order.

As I wrote in my column this morning, the Spanish economy is spiralling into debt-deflation. Monetary and fiscal policy are both excruciatingly tight for a country in this condition. The plan to slash the budget deficit from 8.9pc to 5.3pc this year in the middle of an accelerating contraction borders on lunacy.

You cannot do this to a society where unemployment is already running at 24.4pc. Either Europe puts a stop to this very quickly by mobilising the ECB to take all risk of a Spanish (or Italian) sovereign default off the table – and this requires fiscal union to back it up – or it must expect Spanish patriots to take matters into their own hands and start to restore national self-control outside EMU.

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100017477/spain-runs-out-of-money/

In addition to this, Spain’s regional governments are seeking bailouts:
         
            Spain's Catalonia seeks government help to pay debt

Spain's wealthiest autonomous region, Catalonia, needs financing help from the central government because it is running out of options for refinancing debt this year, Catalan President Artur Mas said today.

"We don't care how they do it, but we need to make payments at the end of the month. Your economy can't recover if you can't pay your bills," Mas told a group of reporters from foreign media.

A spokesman for the Catalan government later emphasised that Mas was referring to payments that must be met routinely each month and not a specific deadline this month.

The debt burden of Spain's 17 highly devolved regions, and rising bad loans at the country's banks, are both at the heart of the euro zone debt crisis because investors are concerned they could strain finances so much that Spain, the currency bloc's fourth biggest economy, will need an international bailout.

Catalonia, which represents one fifth of the Spanish economy, has more than 13 billion euros in debt to refinance this year, as well as its deficit.

All of the regions together have 36 billion euros ($45 billion) to refinance this year, as well as an authorised deficit of 15 billion euros.

Last year many of the regions financed debt by falling months or even years behind in payments to providers such as street cleaners and hospital equipment suppliers.

http://www.buenosairesherald.com/article/101796/spains-catalonia-seeks-government-help-to-pay-debt

Thus, Spain has illustrated the true nature of the EU Crisis in just one week. Specifically…

1. Both governments and banks are lying about the real risks to their balance sheets (Bankia passed the EU’s stress tests).
2. We have reached the point at which Governments can no longer bailout their own failing banks as the Governments themselves are bankrupt (see Catalonia and Spain as a whole).

To recap… Spain has only €5 billion left in its own bailout fund… at a time when its largest bank needs €19 billion (at the least)… and its regional government have begun asking for bailouts too.

Oh, and the Spanish banking system needs to write off another €270 billion…  if Spain cannot cobble together €19 billion, where on earth will it get the money needed to support its collapsing banking system which is on the verge of having to write down hundreds of billions of Euros?

This is the state of affairs in Europe: bankrupt nations trying to bailout bankrupt banks or looking for bailouts from funds that are backed by other bankrupt nations.

What could go wrong?

On that note, Spain will take down the EU, guaranteed. I’ve been warning about this for months and everything is unraveling exactly as I forecast. So if you’re not preparing for an end to the EU in its current form as well as a European banking collapse, you need to get moving.

I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com

Good Investing!

Graham Summers

PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.





Average:

2.125 CATA 09-14

Rendite     16.743 %

Valorensymbol	GDC09
Valorennummer	10'500'406
ISIN	CH0105004060
Handelswährung	CHF
Börse	SIX Swiss Exchange
Produkttyp	Ausländische Anleihen

2.75 CATA 10-16

Rückzahlungsrendite      15.93%

 2.75 CATA 10-16

Valorensymbol	GDC10
Valorennummer	11'041'153
ISIN	CH0110411532
Handelswährung	CHF
Börse	SIX Swiss Exchange
Produkttyp	Ausländische Anleihen

einen so weit gehenden Verzicht auf die Immunität, nämlich sogar auf die diplomatische, habe ich noch nie gesehen....und ich beschäftige mich schon einige Zeit mit der Thematik

aus dem prospectus S 4 der USD XS0363874081

Spanien DL-Med.-Term Nts 2008(13)

SERVICE OF PROCESS AND ENFORCEMENT OF CLAIMS
The Issuer is a governmental subdivision of the Kingdom of Spain. Consequently, it may be difficult for investors
to obtain or realise judgments of courts in the United States against the Issuer. The U.S. Foreign Sovereign
Immunities Act of 1976 (the ‘‘Immunities Act’’), may provide an effective means of service and preclude
granting sovereign immunity in such action in the United States.

The Issuer will irrevocably and unconditionally waive with respect to the Notes, Receipts and the Coupons any
right to claim sovereign or other immunity (including diplomatic) from jurisdiction or execution and any similar
defence and irrevocably and unconditionally consents to the giving of any relief or the issue of any process, save
as provided in Article 44 of the Spanish General Budgetary Law and, after 1st January, 2005, Spanish Budgetary
Law 47/2003, de 26 de noviembre, General Presupuestaria, including without limitation, the making,
enforcement or execution against any property whatsoever, (irrespective of its use or intended use) of any order
or judgment made or given in connection with any Proceedings.

ECB Calls Spain's Bluff... Or Does It? And Did Europe Just Check To The Fed?

Submitted by Tyler Durden on 05/29/2012 17:01 -0400

• Ben Bernanke
• Ben Bernanke
• Bond
• Borrowing Costs
• Central Banks
• European Central Bank
• Nationalization
• None

While most of the early action today was driven by a baseless rumor that the ECB would announce some magical recapitalization plan that would put everything back into its normal (by this we mean somehow sustainable) place, the alleged time when Draghi would make such an announcement came and went... and nothing. Instead, the ECB, using the FT as its mouthpiece, came out late in the day, however not with news that Europhiles wanted to hear. As a reminder, as part of the proposed Bankia nationalization scheme, Spain would inject Spanish debt into the insolvent entity, thereby allowing it to pledge the debt for ECB repo cash. Or so the thinking went. This was, in effect, Spain's bluff. The ECB has just called it.
From the FT:

A Spanish plan to recapitalise Bankia, the troubled lender, by indirectly tapping the European Central Bank for cash, was bluntly rejected as unacceptable by the ECB, European officials said.

News of the rejection came as Spain faces elevated borrowing costs in the bond markets, tries to persuade investors it can contain problems in a banking sector weighed down by €180bn of bad property loans and, on Tuesday, saw its central bank governor stand down early.

Instead, it seems that the ECB is a fan of the old fashioned type of capital raise: one involving equity, and cash, and none of this newfangled repo monetary ponziness. Of course, the only bank that did try a capital raise by way of a rights offering in 2012 was Italian UniCredit which plunged by nearly half in the days following the announcement as a market test would clearly indicate it was woefully undercapitalized and its equity may well be worthless. This, however, does not seem to bother the ECB:

The ECB told Madrid that a proper capital injection was needed for Bankia and its plans were in danger of breaching an EU ban on “monetary financing,” or central bank funding of governments, according to two European officials

ECB's calling of the Spanish bluff also explains the earlier news of Ordonez' premature evacuation from the Bank of Spain, which we noted:

News of the ECB’s hardline response emerged as the Bank of Spain announced that Miguel Angel Fernández Ordóñez, its governor, would step down at the end of next week, a month earlier than planned. Mr Fernández Ordóñez – known by his initials Mafo, who was appointed by Spain’s previous socialist government – has been subject to increasing attacks from politicians over his failure to prevent the country’s banking crisis.

In summary:

“This is like a game of poker now,” one government adviser said, “and I don’t think Spain is bluffing”.

Well, it is. Because its cards, as explained yesterday, are all merely collateral backed by zombie banks which carry their "assets" at idiotic valuations.
So yes - in the great game of monetary poker, the ECB just called Spain's bluff. Or maybe not. Because paradoxically this may all be simply a means to crash the market, as we have been cautioning since last week, when Citi, correctly, said that Crossover would cross over (pun intended) 1000 bps, before the central banks would get involved.
In other words: yes, it is a game of cards, but one which may well have Spain and the ECB on the same side of the table, and now both have checked to Ben Bernanke, who has 3 weeks to decide if the cost of bailing out Europe, and thus US banks, is worth the printing of another $1 trillion.
We can't wait to find out.
Average:

PresseberichtEZB lehnt Spaniens Rettungsplan für Bankia ab

30.05.2012, 00:58 Uhr

Einspruch der Notenbanker: Die Europäische Zentralbank (EZB) hat einem Pressebericht zufolge den von Spanien vorgeschlagenen Sanierungsplan für die strauchelnde Großbank Bankia vehement abgelehnt.

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Die Anzeigetafel der Börse Madrid spiegelt sich in einem Bankia-Logo: Die Rettung des Instituts kommt das Land teuer zu stehen. Quelle: dapd

Madrid/LondonDie Europäische Zentralbank hat einem Pressebericht zufolge die von der spanischen Regierung geplante Sanierung der angeschlagenen Großbank Bankia mit Staatsanleihen abgelehnt. Wie die „Financial Times“ (FT) am Dienstagabend auf ihrer Internetseite mit Berufung auf EU-Offizielle berichtet, haben die Notenbanker den Plan, der Muttergesellschaft von Bankia Anleihen im Wert von 19 Milliarden Euro zu zuschießen, sehr deutlich als nicht akzeptabel bezeichnet.

Diese Staatsanleihen hätten dann bei der EZB gegen Geld eingetauscht werden können. Die EZB hat der „FT“ zufolge Spanien klargemacht, dass eine richtige Geldspritze nötig sei. Die Madrider Regierung hatte diese Idee am Wochenende ins Spiel gebracht, sich zwischenzeitlich davon aber wieder etwas distanziert.
Die Muttergesellschaft BFA der spanischen Krisenbank Bankia hat unterdessen Verluste in Milliardenhöhe eingeräumt. Nach einer korrigierten Bilanz hatte die BFA (Banco Financiero de Ahorro) im Jahr 2011 ein Minus von 3,3 Milliarden Euro aufgewiesen. Dies geht aus einer Neubewertung hervor, die die Unternehmensführung in der Nacht zum Dienstag verabschiedete. Im April hatte das Unternehmen in seiner Bilanz für 2011 noch einen Gewinn von 41 Millionen Euro ausgewiesen. Bankia, Spaniens viertgrößte Bank, hatte am Freitag ebenfalls ihre Bilanz korrigiert und einen Verlust von knapp 3,0 Milliarden Euro eingeräumt.

 http://www.handelsblatt.com/politik/international/pressebericht-ezb-lehnt-spaniens-rettungsplan-fuer-bankia-ab/6687400.html

Bankia Parent Revises 2011 "Profit" Of €41 Million to €3.3 Billion Loss

Submitted by Tyler Durden on 05/28/2012 19:10 -0400

• Bank Run
• Federal Deposit Insurance Corporation
• Google
• Nationalization
• Reuters

It is rather amazing what one finds when a company which previously had allegedly posted a profit of €41 million, somehow becomes insolvent, needs a nationalization to avoid a full out liquidation, and gets bailed out by the state. One of the first things one finds is that the profit pitched to that particular class of gullible idiots, known as shareholders, was an outright lie. And yes, on that one very rare occasion when an auditor refuses to sign off on a bank's financials, in this case Deloitte, run far, and run fast. Instead what one finds is a massive loss. From Reuters: "BFA, the parent group of nationalized Spanish bank Bankia said on Monday it had restated its 2011 results to reflect a 3.3 billion euro loss, rather than a 41 million euro profit, following a bailout from the state. In a statement to the stock exchange regulator, BFA said the restated loss reflected a review of its loan portfolios and capital needs after a new audit and as part of the clean-up plan implemented by the government." Well, duh, something "new" better be reflected, or else the general public may just get the impression that banks are merely pulling numbers out of their glutes, that the entire balance sheet, income and cash flow statements are just a jumble of utter BS, and that keeping one's deposits in a system predicated on lies and fraud may not be the smartest thing. But no: that would imply one is inciting a bank run, and that is frowned upon by the very same government which does everything in its power to facilitate just the data manipulation that magically results in a profitable bank being on the verge of liquidation.
But that's not all. According to Spain's Expansion, the total loss could be far worse, more than double the just reported, to a total of €7 billion. Google translated:

Following a meeting of more than four hours, the board of directors of the entity on Monday approved the restated financial statements. Bankia matrix provided only consolidated data for the year 2011, yielding a loss of 3.318 million euros. However, individual losses would amount to 7,000 million BFA, according to financial sources.

The consolidated balance sheet losses gave the fruit of Bankia own numbers, which on Friday announced that it obtained a negative result of 2.979 million in 2011. In previous accounts, unaudited, BFA had lost 439 million in individual accounts, while recognized in consolidated profit of 41 million.

The red numbers are mainly due to the development of fair value of the share itself has BFA Bankia (52% in December 2011).

Indicatively, the move from a profit to a €7 billion loss, in a US context, is roughly the same as if US bank holding company X were to go from being profitable to posting a nearly $100 billion loss. Overnight. But only after the FDIC was invited to backstop the firm's suddenly underwater hundreds of billions in deposits.
Oops.
Luckily, there is always only one cockroach (ahem JP Morgan prop desk), and we are absolutely confident the €7 billion total loss, when officially announced will be the final one. Just as the final bailout bill of €19 billion will not be topped. Or was that €25 billion?
And nobody will need a European bailout. Ever.

 http://www.zerohedge.com/news/bankia-parent-revises-2011-profit-%E2%82%AC41-million-%E2%82%AC33-billion-loss

Generalitat de Catalunya SF-Medium-Term Notes 20..

  CH0110411532

 

Krisen-BrandherdSpanien entwickelt sich zur ernsten Euro-Bedrohung

18.05.2012, 17:34 Uhr

Der Euro-Zone drohen schwere Turbulenzen. Nicht wegen Griechenland, sondern wegen Spanien. Der Ratingschlag gegen die heimischen Banken reißt das Land tiefer in den Krisenstrudel und stellt Europa vor neue Probleme.

Spanische Flagge. Quelle: AP

Berlin/DüsseldorfWährend die Zukunft Griechenlands in der Eurozone immer unsicherer wird, gewinnt ein viel größeres Problem für den Währungsraum an Dramatik: Spanien. Die Entwicklung in der viertgrößten Ökonomie des Euroraums droht aus dem Ruder zu laufen. Geht das so weiter, wäre das ungleich bedrohlicher als der Fall Hellas, sind sich alle Experten einig. Dafür bürgt schon die ungleich größere Bedeutung Spaniens. Das Land hat einen Anteil an der Wirtschaftsleistung des Währungsraumes von rund elf Prozent, Griechenland nur von zwei Prozent.

Ist eine Währungsunion ohne Spanien überhaupt vorstellbar? „In der jetzigen Konstellation Nein“, sagt der Außenhandelschef der Deutschen Industrie- und Handelskammertages, Volker Treier. Seine Antwort fußt auf zwei Aspekten. „Wenn Spanien unter die europäischen Rettungsschirme käme, wäre das noch machbar.“ Deren Volumen von rund 800 Milliarden Euro, davon rund 500 Milliarden Euro freie Hilfemittel, könnten zunächst ausreichen. Aber es seien die Ansteckungsgefahren für andere große Länder wie Italien oder Frankreich, die das Mega-Risiko darstellen, dass die Währungsunion zerreißen könnte. „Deshalb kann man sich im Moment eine Euro-Zone ohne Spanien nicht vorstellen“, lautet Treiers Folgerung. So weit ist es aber zum Glück noch nicht.

http://www.handelsblatt.com/politik/international/krisen-brandherd-spanien-entwickelt-sich-zur-ernsten-euro-bedrohung/6649346.html

 

← Greek Politics: A Step Towards the Exit

Get ready for the Spanish bailout

May 14, 2012 Leave a comment

No one can pretend to know whether Spain is illiquid or insolvent without gauging the size of the black hole that is the country’s banking sector. The Spanish government is finally starting to do this: Bankia and other banks are reportedly set to receive a capital injection from Madrid. With the Spanish economy contracting sharply and with unemployment soaring, it was inevitable that the government had to bail out the banks. But this only deals with one piece of the puzzle. Without growth, the Spanish sovereign will need a bailout as well.
Spain’s credit boom peaked in 2008 when the supply of cheap, external finance began to fall sharply. Four years later, Spanish banks’ asset quality continues to plummet. The sector will require €100-250bn in recapitalisation later this year to maintain a 9 per cent core tier one capital ratio, the minimum stipulated by the European Banking Authority. In the meantime, there are concerns about the capacity and appetite of Spanish banks to support the sovereign, particularly amid rating downgrades and deposit withdrawals.
Ideally, a bailout for Spanish banks should come immediately and in the form of direct capital injections from the EU bailout funds. Germany remains staunchly opposed to this, as it would mean giving up the stick of conditionality and feeding Spain the funding carrot. Such an option is also resisted by the Spanish authorities as the EU taxpayer will effectively take over their banks.
Instead it looks like a bailout for Spanish banks has been postponed until the very last minute. The cost of a bank bailout would then be foisted on to the Spanish sovereign’s balance sheet.
Bank bailouts on this scale may well bring the Spanish state to its knees. If they don’t, Spain’s public and external debt positions will.
In order to stabilise its public debt levels after a bank recapitalisation, Spain would have to generate a swing in its public finances that is not only unrealistic, but also self-defeating. The tax hikes and spending cuts required would make the recession deeper and cause the primary balance to deteriorate.
In order to put itself on a path towards external debt sustainability, Spain would need to see a huge adjustment in its trade balance. In the short-run, a fall in domestic demand could quickly improve the trade balance. However, in the medium-term, Spain can only service its foreign debt if it finds balanced and sustainable growth, which requires a real-terms depreciation that will not occur unless the value of the euro falls sharply.
Anyone who has closely followed developments in the eurozone will be struck by déjà vu looking at Spain’s current predicament. The corrosiveness of banking sector uncertainty for investor confidence in Spain is reminiscent of Ireland in 2009 and 2010. Spain’s austerity-recession feedback loop is similar to the process that fed the economic contraction in Greece and Portugal.
And yet despite the clear signs of failure in the existing bailout countries, the EU looks set to pursue an unchanged plan in Spain. But the crucial difference between Spain and the bailout countries is size. If things go wrong in Greece, Portugal and Ireland, a second bailout is affordable. But there can only be one roll of the dice for a country as large as Spain.
A bailout package would buy some time for Spain, but time will only help if it is used to generate economic growth. By making private claims on the sovereign junior to the claims of the troika (European Commission, European Central Bank and International Monetary Fund) even a bailout risks reducing the chances of it regaining market access. Moreover, with economic indicators showing Spain sinking further into recession, a turnround in the country’s economic performance would require a significant shift in policy: monetary easing by the ECB, a weaker euro, fiscal stimulus in the core, less front-loaded austerity in the periphery, more international firewalls and debt mutualisation.
The only way for there to be a happy ending in Spain is if action is taken swiftly in Brussels, Frankfurt and other European capitals. But that is not likely to happen. The eurozone periphery and Spanish crisis look like a slow motion train wreck.
By Nouriel Roubini and Megan Greene. The writers are respectively chairman and director of European economics, Roubini Global Economics.
This article was co-authored with Nouriel Roubini and originally appeared as an op-ed in the Financial Times on May 9th, 2012

 http://economistmeg.com/2012/05/14/get-ready-for-the-spanish-bailout/#more-1841