June 6, 2012
Spain’s budget minister has requested an immediate bailout up to 4 times higher than previously estimated saying they can no longer borrow money from the markets.
Spain’s budget minister has gone on the radio today begging for an immediate bailout between €40 billion and €90 billion which is between 2 to 4 times the originally estimated €20 billion amount.
On the air he warned that Spain’s outstanding €1 trillion worth of debt to foreign investors and other regulatory restrictions prevent the nation from accessing alternative bailout mechanisms already in place.
He stated the interest rates on the nation’s sovereign debt have skyrocketed sit is no longer feasible to fund the country through issuance of sovereign bonds on the open market with out digging the country further into a hole.
The warning comes as the Wall Street Journal finally admits “Spain’s troubles–unlike those of Greece, whose economy is one-fifth the size–can’t be blamed on reckless government spending, but instead on a burst real-estate bubble.”
At the same time that Spain is begging for help the debt contagion has spread to Germany were Moody’s issued widespread downgrades of German banks.
As desperate as words of Spain’s budget minister are many prominent politicians continue to publicly acknowledge that Spain needs a bailout instead saying it is only a “possibility” that they may.
While France has given the nod to go ahead with the bailout Germany is still resting the move fearing agreeing with the bailout will spread the risk to Germany itself.
Meanwhile EU heads of state continue to negotiate an EU banking union and possibly even a fiscal pact that will require each nation to surrender its fiscal sovereignty to create Euro bonds that all member nations will be able to use to acquire funding at reasonable interest rates.
Such a pact would put a centralized EU committee in charge of each nation’s finances meaning the parliaments of each nation would no longer have control over the nation’s own finances.
Spain has already waved the white flag and is willing to surrender its fiscal sovereignty to get through the crisis but Germany is so far resisting that idea publicly while reports indicate they are negotiating such a pact behind closed doors.
Meanwhile speculation that Greece will be forced to leave the Euro continue as it was revealed a new currency for the nation is already being printed.
The EU Observer reports:
Spain appeals for EU bail-out of struggling banks
Spain’s budget minister has during a radio interview appealed for an EU bail-out of the country’s banks.
Speaking on Tuesday (5 June) on the Onda Cero radio station, Cristobal Montoro said: “Europe should move swiftly to allow its institutions to directly boost the capital of troubled banks in Spain.”
He said Spain can no longer borrow money from markets due to loss of confidence which has seen borrowing costs shoot up compared to Germany.
“What that premium says is that market doors are not open to Spain,” he noted.
The cost of a Spanish bank rescue is being estimated at between €40 billion and €90 billion.
Montero added that a full-blown EU-IMF bail-out is unfeasible because the EFSF has €440 billion in the pot, while Spain, the eurozone’s fourth largest economy, owes foreign lenders almost €1 trillion.
Source: EU Observer
The Wall Street Journal reports:
Spain’s Banks May Need Bailout in Weeks
– The need for a bailout of Cypriot banks will become clear in “next days”
– Diplomat says there is no contingency planning in case of Greek exit from euro zone
BRUSSELS–Spanish banks may need a European Union bailout within weeks, a senior Cypriot diplomat said Wednesday, in comments that feed into mounting concern over the stability of the ailing sector.
The Cypriot ambassador to the EU, Kornelios Korneliou, said there was “a possibility” that Europe’s rescue fund would need to be deployed to help Spanish banks after Cyprus takes over the reins of the rotating EU presidency on July 1.
Also Wednesday, Spain’s finance minister Luis De Guindos sought to play down earlier comments by budget minister Cristobal Montoro and said an immediate rescue for the country’s banks hadn’t been discussed.
On Tuesday, Spain made its most explicit suggestion yet that it would seek help from Europe for its struggling banks, as the country’s budget minister said high interest rates on Spanish bonds were a signal the government risks losing access to financial markets.
The crisis in Spain, the euro zone’s fourth-largest economy that is widely considered too big to bail out, is seen in financial markets as the acid test for the survival of the euro. Spain’s troubles–unlike those of Greece, whose economy is one-fifth the size–can’t be blamed on reckless government spending, but instead on a burst real-estate bubble.
Lending directly to banks would be a departure that would require the approval of all euro-zone governments, and possibly changes to European treaties. Germany has so far argued that European rescue funds shouldn’t be lent directly to banks. Officials in Berlin argue that such a move would weaken Europe’s leverage over governments to put their finances in order.
Turning to his own nation, Mr. Korneliou didn’t rule out that his own island nation might also need a lifeline.”We have a lot of problems in our banking sector because of exposure to the Greek market… A bailout is a possibility but we are not there yet.”
It was first up to Cypriots to see if they could recapitalize their banks without EU help, he added, saying the situation would be clearer “in the next days.”
Cyprus has been shut out of the bond markets and Popular Bank, its second-largest bank, needs a 1.8 billion euro ($2.24 billion) lifeline by the end of June. “The current crisis is the biggest crisis Europe has ever faced,” Mr. Korneliou said.
Regarding the coming Greek elections, he said there was “no contingency planning as far as I know” in case of a possible Greek exit from the euro zone.
Zero Hedge Reports:
EU Expects Spanish Bank Bailout Loans To Be Double The €40 Bn Previously Disclosed
While the Reuters story, which we noted earlier, and which speculated that a no-strings attached bailout of Spanish banks may be coming courtesy of a German stealth funding of the nearly empty Spanish bank bailout fund, has been making the rounds over and over, the latest incarnation of the underlying narrative, brought to us courtesy of the FT, has a novel twist: “EU officials are also debating the size of the loans needed. Senior Spanish banking executives have put the figure at about €40bn, but EU officials have been looking at plans that are at least double that, according to people briefed on the discussions.” In other words, just as we speculated, Goldman’s big picture estimate of Spanish bank funding needs was woefully inadequate, and once the dirty truth is uncovered, it will become apparent that losses, which at this point are nothing more than capital shortfalls from deposit runs, are far, far greater than anyone speculated. It also means that the disconnect between the European reality, and what the media and politicians are spoonfeeding the gullible public, has hit unprecedented levels. Finally, once Germans once again realize they have been lied to, what happens then: will they simply fork over the cash as rumored, or will they finally say enough? According to this lead article in German Welt, the answer is not looking too good for the broken European monetary experiment.
Spanish officials and bank regulators are confident that the IMF will conclude that the recapitalisation needs of the country’s banks – principally the former cajas that make up Bankia, Catalunya Caixa and NovaCaixaGalicia – will be more modest than many foreign analysts assume.
Despite the urging of Brussels and Paris, officials said direct bailout loans to troubled banks – bypassing the Spanish government – have been ruled out. Regulations for the current €440bn eurozone rescue fund and its permanent €500bn successor forbid such direct capital injections and changing the rules would take too long to come quickly to Madrid’s assistance.
Instead, one of the options under consideration is to provide the bailout aid directly to Spain’s bank rescue fund, known by its Spanish initials Frob.
If required, the European Financial Stability Facility, the eurozone’s bailout fund, could rapidly inject bonds directly into Frob.
Naturally, the biggest problem with this scheme, is that it simply plugs a leaking vortex: as more Spanish real estate losses bubble to the surface, and more deposits are withdrawn, more, and more, and more cash will have to be provided by Germany. And today’s initial doubling of bailout estimates is just the beginning: the final cost before German taxpayers finally revolt in disgust with what is nothing but a direct Spanish bank bailout, will be orders of magnitude higher. And so the sunk costs of Europe’s continental bailout will continue to soar.
“Eurozone member states have an incentive to design a programme that would emphasize banks and be ‘conditionality light’ to facilitate Rajoy’s ability to manage his domestic constraints,” said Mujtaba Rahman, a Europe analyst at the Eurasia Group risk consultancy. “The longer the Spanish situation drags out, the greater is the risk that Italy will also come back into play.”
And there you have it: at the end of the day, it is all about preventing delaying the realization that the Italian financial sector is just as broke as that of Spain.
Needless to say, a Spanish FROB refill won’t halt the crisis. It will merely delay it. And the outcome will still be the same. But at this point delaying the inevitable collapse is really the only option Europe has. If it means some more Germans lose what is left of their wealth, so be it.
The Daily Mail reports:
The contagion spreads: Now Moody’s downgrades seven GERMAN banks as Spain begs for $40bn
- Spain needs around €40bn to prop up its debt-laden banks
- Long-term plans for eurozone unlikely to address imminent Spanish crisis
- FTSE and German DAX both rise ahead of meeting of the ECB
- Tory MP says Greece must leave euro to avoid a catastrophe
Seven German banks have been downgraded by one of the most reputable rating agencies amid fears that eurozone debt will hit the country.
Moody’s said it would be cutting the rating of Germany’s second biggest bank, Commerzbank AG, from A2 to A3 for the long term with a negative outlook.
Moody’s said its move was driven in part by ‘the increased risk of further shocks emanating from the euro area debt crisis in combination with the banks’ limited loss-absorption capacity.’
Despite the downgrading of the banks, world markets rose, buoyed by the prospect of action from the European Central Bank which is due to meet tomorrow to discuss the crisis.
Spanish Treasury minister Cristobal Montoro has said high borrowing costs mean that Spain ‘doesn’t have market doors open’ to it as he begs for more money to help its debt-laden banks.[…]
He added that a bailout for Spain would now be impossible, and the amount of money needed to prop up its troubled banking sector is estimated to be around €40bn.
He did not explain why a rescue would be impossible, but many analysts fear the size of the economy would stretch the resources of existing European rescue mechanisms.
Source: The Daily Mail
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