Another Spanish Bailout Plan Taking Shape As Germany Folds

Tyler Durden's picture

With all proposed Spanish bank bailout plans so far either shot down, or found to be inadequate, the question always has boiled down to whether Germany, which as we have noted in the past is the true lender of last resort in Europe, not the ECB, will agree to the trade off of preserving the Eurozone, i.e. temporarily ending the latest Spanish risk flare out, in exchange for the risk of political disgrace domestically, where more and more people are against sweeping European bail outs, due to soaring "contingent liabilities" which increasingly more people on the street are realizing are all too real (see: TARGET2). On the other hand, a direct bank bailout request for Spain using traditional European channels, which would fund the government, would result in a deterioration in the Spanish sovereign leverage, and make the country even riskier, thereby putting more pressure on the banks, and so in a toxic loop. It now seems that this dilemma may have been resolved, at least on paper. As Reuters reports, "A deal is in the works that would allow Spain to recapitalize its stricken banks with aid from its European partners but avoid the embarrassment of having to adopt new economic reforms imposed from the outside, German officials say. While Berlin remains firm in its rejection of Spain's calls for Europe's rescue funds to lend directly to its banks, the officials said that if Madrid put in a formal aid request, funds could flow without it submitting to the kind of strict reform program agreed for Greece, Portugal and Ireland."

Whether this is merely more posturing out of Germany to telegraph it is willing to step in, without actually doing it will likely soon be tested. When that happens, expect a backlash: "Merkel has also sent the message that she is open to Europe-wide supervision of the banking sector, albeit as a "medium-term" goal, one element of a proposed "banking union" to break the vicious circle of interdependence between Europe's financial institutions and its sovereigns. But she must tread carefully. Some of her political allies and leading conservative newspapers have come out strongly against other aspects of a banking reform, including the idea of a Europe-wide deposit guarantee scheme." Yet as we showed yesterday, Germany may not have an option: the cost of a Eurozone collapse, at least in the short term, will surely be greater than kicking the can one incremental time. Which is why sovereign spreads in Europe have tightened substantially on this latest news. That, and of course, the latest Hilsenrath rumor that the Fed is about to CTRL-P, has sent risk soaring despite the latest ECB disappointment from this morning.

More from Reuters:

Spain would only have to agree to new conditions tied to the reform of its banking sector. Berlin is also exploring the possibility of funneling aid to Spain's bank rescue fund FROB to reinforce the message that it is the country's banks and not its public finances which are at the root of its problems.


The evolving German stance on aid for Spain is the latest evidence that Chancellor Angela Merkel is adopting a more flexible approach to solving the euro zone's deepening debt crisis.


With an IMF report on Spain's banks looming next week, officials say all the pieces are in place to move within days on an aid deal for Madrid. A package is expected by early next month at the latest, after an external audit of the banking system.


"One could imagine that conditionality would be focused mainly on the banks, because Spain has already tackled the other reforms," a senior German government official said on condition of anonymity because of the sensitivity of the situation.


"These packages are not aimed to punish, just to ensure that the necessary reforms are being implemented."


Spain's Economy Minister Luis de Guindos reiterated on Wednesday that his country had no immediate plans to request a bailout and was awaiting the external audit in late June.


Berlin is certainly shifting positions. Last week, it signaled it supported granting Spain an extra year to cut its deficit to the EU's 3 percent of gross domestic product threshold, having previously held fast to the notion that austerity drives should not be diluted.

In other words, Germany is about to onboard even more contingent liabilities, in the form of directly subsidizing the Spanish bailout fund, in what amounts to the latest stealth bailout of an insolvent banking sector. And at this point why not: the sunk costs are so huge that a EMU collapse would disintegrate Germany - may as well perpetuate the illusion that somehow any of this debt will be paid back.

Multiple sources said the German finance ministry was exploring the possibility of channeling EU aid directly to Spain's Fund for Orderly Bank Restructuring (FROB), but that this would only work under the ESM, which is due to come into force next month.


"Nobody wants the EFSF for Spain. It's too restrictive," a second senior official said, pointing to the added flexibility contained in Article 19 of the bloc's permanent rescue mechanism.


That article states explicitly that the board of governors of the ESM are allowed to make changes to the financial assistance instruments laid out in the facility's statutes.


A senior French official who has been in contact with the Germans said negotiations were heating up and that there was a broad consensus now among member states on using the EFSF or ESM to help Spanish banks.


"The Europeans want to cut the link between the banks and the sovereign. That's what is being discussed. There are plans to do that in the long run (through a banking union) but the idea is also to apply that to Spain," the official said.

So for the time being, this is the latest page in the neverending European script of infinite bailout permutations. We expect some informal refutation, which will make things worse, which will merely press the inevitable bailout outcome even more, until one day there is simply no more German money lying around available to preserve the broken European dream, and the illusion that "Europe is fine."

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LULZBank's picture

The last one really helped.

NotApplicable's picture

Wait, isn't it Italy's turn?

The Big Ching-aso's picture



I predict CTRL-S will be loose and smelly after they CTRL-P.

jus_lite_reading's picture

Well well well... WHO could have foreseen THIS bailout? I mean, Germany was playing such a good game!! LMAO!!

100% GUARANTEE they will bailout every failed country and bank and pass the burden of inflation on to the "little people"...


The Monkey's picture

With the 10 & 30 year auctions coming right up, treasuries fixing to tumble..!

Ahmeexnal's picture

In a nutshell, Spain wanted the eurozone to bail out its banks. Merkel said "NEIN!". But Spain, following an ancient adage, took things up directly with the circus owner (Van Rumpoy) instead of wasting time with the clown (Merkel).

Chris Jusset's picture

Wow, free money for Spain without any conditions or sacrifices.  Merkel is really desperate to keep the Ponzi running ... I'm sure the German taxpayers won't mind. 


Next up: Italy.  There is absolutely no end in sight ... eventually every country will have its hand out demanding free money without any strings attached ... or else the entire Ponzi will collapse.


Fucking amazing.

Assetman's picture

It's free money for Spain's BANKS, not Spain... but your main point is spot on: the Ponzi must continue.

Greece should threaten total default every other week, as the ripple effects from the consequences of doing so just get greater and greater.  Seeing the Syriza leader get elected could make things very entertaining...

But don't you worry-- if Europe is close having their Ponzi collapse, Steve Lies-man will be there ready to shovel U.S. Fed money out of Ben's shiny new helicopter.

aheady's picture

¡Ándele! ¡Ándele! ¡Arriba! ¡Arriba! ¡Epa! ¡Epa!

trebuchet's picture

"And at this point why not: the sunk costs are so huge that a EMU collapse would disintegrate Germany - may as well perpetuate the illusion that somehow any of this debt will be paid back."


The above stament from the article sums up the next 3 months neatly.


Chris Jusset's picture

Yep, Germany has NO CHOICE but to cave to every country that threatens collapse.  This will continue into perpetuity, or until Germany finally says "NO MORE" (or goes bankrupt).

The Monkey's picture

Tell you what. $3,000 thiingamagigs + QE3 + Europe solved for the moment = big ass treasury short.

Treasuries are like spicy baked beans, hard to move. But once they move they run like fire!

JeffB's picture

Timing is the tricky part.


MillionDollarBonus_'s picture

Zerohedgers are so tough on Spain's banks. Spanish banks are actually being forced to take bailout money against their will. But doomer libertarians will never admit this, because it simply does not fit the narative of evil bankers "taking" tax payer's money.

Comay Mierda's picture

your employment offer dilemma is solved. go work for a spanish bank. they are about to get million dollar german taxpayer funded bonuses.

Spastica Rex's picture

Performance art or pure dreck - the reader has to decide.

LULZBank's picture

Being forced to take bailouts by their scams and greed.

TWSceptic's picture

You could even go as far as stating the tax payers are the true source of evil. They have elected their government and so they are forcing the banks to take their money. Those poor banks have no choice but to take the money and impoverish the evil voters.


Wait wut?

BeetleBailey's picture

CERTAIN Zerohedgers are so IDIOTIC  on UNDERSTANDING banks.

Especially those that supposedly have job offers from the same bandit banks

Spanish banks are NOT actually being forced to take bailout money against their will.

They HAVE no will.

But DOUCHEY LIBERAL IDIOTS will never admit this, because it simply does not fit the narative of GREAT, HONEST bankers NOT "taking" FREE money, THEN BETTING ON RISKY -ASSED SHIT WITH THAT MONEY

There, fixed your fucked up post for ya...


Shit in, shit out...

Ahmeexnal's picture

It's clear to all that you don't know shit from shinola.

ITrustMyGut's picture

the true idiots are the fools that betray their faux listening habits by using terms like "liberals" in their blame paradigm

the system owns the "liberals vs. conservatives" circus paradigm.. and its effectiveness is evident in you, young skywalker

eclectic syncretist's picture

this will continue until Spain realizes it is in their best interest to stop it.

samwell's picture

There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved ludwig von misses.


these beurocratic trash will never learn until it is too late.  they are absolutely barking insane and desperate to preserve their artificial union.  it will all end badly as usual with these criminal slime balls and their ilk probably with a huge conflagaration called WW3

The Big Ching-aso's picture



Y not?  It's working so far in their figments of imagination.

t_kAyk's picture

Well, not with that attitude... 

CrashisOptimistic's picture

Examine this rumor.

What exactly is being said?  Money is not being GIVEN to the Spain banks.  The mechanism is that money is to be LOANED to Spain banks.  

How do they then satisfy their reserves requirement?  They have to raise capital, not debt.  Not even in the figments of European rumor imagination can they suggest Germany is going to GIVE this money to banks.

Rip van Wrinkle's picture

You think Germany is going to get these 'loans' repaid?? Course they will. Sure.

Rynak's picture

"Your debt for my debt" can be a more "friendly" version of defaulting.

In fact, i wonder why german policymakers haven't played this hardball strategy: You want us to take up their debt? Well, lets see, we also owe you this and that..... so how about we call it zero? But oh wait, i know why not..... a giant shitstorm would break lose, compared to yesterday's action would look harmless.

Commander Cody's picture

So, do we really believe that money actually flows from the sovereign to the other sovereign and then to the banks?  What flows is BS in the form of a promise to support capital needs so the banks can pretend they're more solvent and the band plays on.

Global Hunter's picture

"avoid the embarrassment of having to adopt new economic reforms imposed from the outside"

Embarrassment?  So they are governed by the same concerns and motivations that 14 year old girls have?

Mr Lennon Hendrix's picture

What is this word "jubilee" I keep hearing about?

slewie the pi-rat's picture

new look is noted;  slight improvement, imo

the jubilee is part of mosaic/jewish orthodox law;  no goobermints have it on their books at the present time

pay attention;  there might be a quiz...

this is a good piece, describing the psychodynamics of risk0n and how they are controlled by the MSM as is so much of tyler's excellent work about QE and other shenanigans and MSM buzz words

tyler and slewie were discussing just exactly this very scenario last friday, me, myself... trolling away with others on his market-close piece, as those who may have not been happy enuf to be paying attention might not realize

the political ideas are slowly changing, but not enuf to matter, perhaps

johnnySilverBear, in addition to giving tyler's bests works more attention, has started a 4-part series of which all BiCheZ should take note, if you would pardon my rare attempt to try to waken anyone The Federal Reserve Cartel: The Eight Families

4 parts? probably a lost cause for attention-spammers like million$cunt and the asswipes who gleefully feed him with our preciousJuice

you will enjoy it, i hope, and hopefully send it to those who get their all from the MSM, where these ideasRnot considered at all important, it seems...  kinda like the biblical jubilee;  ya hafta blow the shophar first, right?  not just blow juscticeScalia and the bigChiefJustice with whom bush saddled us while the geeBee was gettingGonzo so much MSM faceFuk time b/c torture and guantanimo and torture are necessary to preserve ourFreedom, you see, and good thing prez0 was against it b4 he was for it it, too, or he probably wouldn't have been "elected" and we coulda had jMcCain running the extreme renditions, the camps, the torture, the assassinations, and the joy-stcking of everyone w/ drones...

Ahmeexnal's picture

There is no chinese word for jubilee. As the ultimate bag holder, China will not allow lazy europeons to leave the table without paying.

China will however, gladly accept europe's gold as payment.

Comay Mierda's picture

everything is saved. again. btfd.

Conman's picture

So we are almost back to pre NFP, so markets are essentially saying hey we dont care about no stinkin jobs and no new stimulus out of ECB - no problem! All's well.

RobotTrader's picture

Back up over the 200-day.


Another classic "PigMen Shank and Crank" job on the SPY.

BBVA and STD on fire.

Same with HSBC.

junkyardjack's picture

Ignore the news, trade the price.  This is likely a short term bottom for the next few weeks then we'll roll again

WineSorbet's picture

You used to annoy me Robo but now I see the light.  Pigmen will always win. 

Spastica Rex's picture

Isn't Europe supposed to be out of the news?

Calidreaming's picture

As Modern English said:   "Ill stop the world and melt with you"   markets on their slow melt up due to nothing.   One day soon though the melt up will have a complete late day reversal.  I cant wait for that day to happen

hedgeless_horseman's picture



Got free money?


BlueStreet's picture

Anything that causes a bigger rip that can be sold is a good thing, keep the news coming. 

GolfHatesMe's picture

Spiderman Towels made it out of customs!

StychoKiller's picture

Stan Lee is turning over in his grave...oh wait!  He's still alive -- probably lawyerin' up as we speak!

LongSoupLine's picture

well SPX is up 22 fucking bullshit points on bad news today, this should be worth another 50-80.  Fuck this market and all the assholes ramping it. 

junkyardjack's picture

It started showing a bottom two days ago and yesterday commodities started going up oddly as well. Namely sugar, wish I threw a position on it but oh well.  The news will be the news but prices have been saying bottom for a little while.  We'll get this bounce back up and just stay on your toes for a roll back

Dr. Engali's picture

These people are nucking futs. Either shit or get off the pot. They either need to restructure the Euro agreement so they can issue Euro bonds or they need to dissolve it. Either way they need to put an end to this madness.

CvlDobd's picture

Mark my words! I will cry if they issue Eurobonds.

That will put so much lipstick on this fucking pig, us bears will have all died off from suicide before we get the chance to be right!

Just today a co worker told me then the government isnt really that bad. I'm fucking losing it here!