Last year I wrote a piece in which I noted that the EU would implode
before the end of 2012. The reason for this was clear as day: EU banks
needed to roll over hundreds of billions of Euros’ worth of debt
(possibly trillions) at a time when interest rates would be rising as
sovereign bonds fell in value:
At that time I wrote:
This is not a question of “if,” it is a
question of “when.” And it will very likely happen within the next 10-12
months if not sooner depending on how soon Greece defaults.
The reason that this is guaranteed to
happen before the end of 2012 is that a HUGE percentage of European bank
debt needs to be rolled over by the end of 2012.
Between now (autumn 2011) and then (end of 2012)…
- French banks need to roll over 30% of their TOTAL debt.
- Spanish banks and Italian banks need to rollover more than 33% of their TOTAL debt.
- German banks need to roll over nearly 40% of their TOTAL debt.
- Irish banks need to roll over almost HALF (50%) of their TOTAL debt.
Let’s fast forward to today to focus on Spain’s current predicament:
Consider the following…
- Spain’s banking system is roughly €3 trillion in size (3X Spain’s GDP).
- Spanish banks’ gross borrowing from the ECB was €316 billion in April.
- Spanish banks need to roll over 20% of their bonds (roughly) €600 billion this year.
Anyone can see by this a simple “back of the envelope analysis “that
Spain will need a lot more than €100 billion to recapitalize its banks.
How on earth Spanish banks can roll over €600 billion in
bonds at a time when the global bond market has just learned that all
private bondholders will be subordinate to the ESM is beyond me (read: it won’t happen).
And thanks to a €100 billion bailout which has put Spain’s REAL Debt to GDP at 146%, Spain is now facing both a
banking crisis AND a sovereign crisis simultaneously.
There is no entity on this planet that can shore up both the Spanish
banking system as well as the Spanish Sovereign bond market.
To be blunt, I fully believe that this €100 billion bailout for
Spain’s banks has put Spain in a “checkmate” position. With total
unemployment at 25%, a housing bubble that continues to collapse, and an
official Debt to GDP ratio of 146%,
there is no way Spain will be able to grow its way out of this mess.
Put another way, Spain is a financial tsunami and the €100
billion is an emergency levy made of questionable materials built
unqualified engineers: the move has bought some time, but the relief
will be brief.
This is why Spain’s Credit Default Swaps (essentially bets that Spain will default)
have nearly doubled in 2012 alone.
And the bailout has done nothing to assuage investors’ beliefs that
Spain is in BIG TROUBLE. Indeed, we’re heading back towards all time
highs already within one week of the bailout.
Put another way, Spain is toast. I’ve already assessed that none of
the key players (the IMF, the ECB, the EFSF, or the ESM) has the
firepower to prop up Spain whose
real capital needs are more in the ballpark of €300 billion -€500 billion.
Thus, it’s GAME OVER for the EU. Sure it may take a while for this to
manifest as politicians offer various hair-brained schemes to attempt
to put off the inevitable debt collapse, but that debt collapse
is coming and it
will hit before the end of 2012.
On that note, if you’re not preparing for the collapse of the EU, you
need to do so now. 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
investments (both direct and backdoor) will 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.
And ALL of this is available for FREE under the OUR FREE REPORTS tab at:
http://www.gainspainscapital.com
