Old Spanish Bailout Plan Now - New Plan Jan 2013

[Reality Check]

http://www.telegraph.co.uk/finance/fina ... thing.html

http://www.consilium.europa.eu/uedocs/c ... 131359.pdf

http://blogs.wsj.com/marketbeat/2012/06 ... eu-summit/

http://online.wsj.com/article/SB1000142 ... 55190.html


The Spanish Bank Bailout plan that was hailed as the solution to the Spanish Bank problems has been abandoned.

The abandoned plan required Spain to receive a bailout in the form of a loan and then give the money to the Spanish Banks.

There were two problems with this:

1. All other countries who received Bailouts were required to agree to austerity measures, and Spain did not want to.

2. The new bailout loan to Spain would increase the total Spanish debt by 100 Billion and the mere announcement of it caused Spanish government borrowing rates to jump over 7%.

That one month old plan has now been abandoned and replaced by an announced direct bailout of the Spanish banks by an EU wide bailout fund.

Details on the new plan are sketchy except that it will not be delivered through the Spanish government, thus avoiding the addition of 100 Billion Euros to Spain's debt overnight.

The details that have been released appear to indicate that it will not involve any new commitments of money ( or new guarantees ) from EU countries, but instead only use funds from already existing bailout funds that had previously received "very limited commitments" from all EU countries. The total value of these previous commitments was estimated at around $600 Billion Euros, but some of it has been already been expended bailing out Greece and other countries.

[Reality Check]

One big change here. Conceptually the European banks are no longer a single country problem.

In concept the European Union has agreed to take EU wide responsibility for the loses of the banks controlled by only one country, in this case Spain.

So Germany and the rest of the EU are absorbing the loses of Spanish banks.

This is the first step toward making Germany and the entire EU responsible for coming loses of Italian and French banks in addition to Spanish Banks.

To continue a theme - loses of individual countries' banks are being centralized at the heart of the European Union.

[Reality Check]

One big limitation to this new plan: Germany has not put up Germany's "full faith and credit" to backup either the Spanish banks, or the limited Bail Out fund.

Germany has not agreed to put up one addition Euro to bolster the bailout fund.

The fund is completely inadequate to deal with an Italian Bank bailout or a French bank bailout.

The fund may be hard pressed to even deal with the additional Spanish government and Spanish bank bailouts which are coming.

An Italian government bailout remains something that is being ignored and not planned for.

[vincecate]

One big limitation to this new plan: Germany has not put up Germany's "full faith and credit" to backup either the Spanish banks, or the limited Bail Out fund.

Germany has not agreed to put up one addition Euro to bolster the bailout fund.

The fund is completely inadequate to deal with an Italian Bank bailout or a French bank bailout.

Once a central bank is willing to print money and give it to anyone who puts up bad debt as collateral, there is no limit to how much money they can generate. Seems to be where we are headed.