Germany Open To Mini Spanish Bailout, Ball In Rajoy's Court Now
Curious why the EURUSD has taken off like a stung dog again? The same reason as always: posturing out of Germany that contrary to previous Reuters misreports, it actually is happy with Spain doing a mini-bailout. To wit:
- GERMANY OPEN TO PRECAUTIONARY CREDIT FOR SPAIN, LAWMAKERS SAY
And now the ball is back in Rajoy's court, as Spain will have no choice but to implement this mini-bailout, which is not the full ESM rescue package, but will allow the ECB to buy piecemeal Spanish debt (as opposed to merely dangling the threat it will do so). The bad news is that like QEternity, the open-endedness of the ECB threat to monetize Spanish debt is far more powerful than the actual process. Furthermore, the entire Spanish bailout, not just the partial one, has already been long priced in in its bonds. In other words, this is nothing but posturing, but one meant to push Spain ever closer to requesting not only a small bailout request (one which would not allow the ESM to monetize Spanish debt in the primary market, but will allow ECB to buy Spanish bonds in the secondary market), but a full blown one. Finally, never forget that to Germany this is all a process geared for one simple thing: keeping Europe's biggest and most relatively undercapitalized bank - Deutsche Bank - afloat. If this means rescuing it via the guise of Spain, so be it.