The Spain Relief Rally is About to End
As I noted previous articles, Spain has essentially three options:
- Spain goes the “Greek route” of agreeing to austerity measures in exchange for bailouts (which will implode the economy).
- Prime Minister Rajoy refuses to impose austerity measures and is removed/ replaced by an EU technocrat who is pro-austerity measures (like Italy experienced last year)
- Spain defaults/ leaves the EU.
Thus far Spanish Prime Minister Rajoy has opted to go for #1. The end result has been riots, protests, and now the threat of Spain as a country breaking up. I’ve long averred that Spain will bring about the break up of the Euro. By the look of things, we’re not far from this.
To whit, as the above article notes, Germany, Holland, and Finland have decided to pull back on the promise of a €100 billion Spanish bank bailout first established in June. These countries are now stating that this bailout should be included as part of the ESM mega-bailout fund’s banking program that could take years to implement.
Spain doesn’t have time for this. As I’ve noted before, Spain is facing a full-scale bank run (Spaniards pulled another €17 billion from Spanish banks in August, bringing the year to date bank run to over 18% of total Spanish bank deposits).
Now add multiple regional bailout requests, as well as 25% total unemployment to the mix and Spain is an absolute disaster. The Spanish Ibex knows it too:
Congratulations Mario Draghi, you promised unlimited bond buying and you bought less than one month’s worth of gains for Spain. If you want proof positive that Central Banks are losing their grip on things, the above chart is it. The moment we take out that trendline again, it’s GAME OVER (what more can the ECB promise?)
Remember, Spain is currently drawing over €400 billion from the ECB.
Let’s put this number in perspective… in June before Spain requested a €100 billion bailout, the country was drawing only €300 billion from the ECB.
Since that time and now, the ECB has promised to provide unlimited bond buying… and even Germany has indicated it would be open to some sort of a Spanish bailout…
And yet, Spain is now borrowing even MORE than it was in June.
This is not progress in any way… if anything it indicates that things are worsening in the EU’s financial system at a staggering pace. The powers that be are keeping things calm until after the election… at which time there will be absolute hell to pay.
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