ECB Calls Spain's Bluff... Or Does It? And Did Europe Just Check To The Fed?

Tyler Durden's picture

While most of the early action today was driven by a baseless rumor that the ECB would announce some magical recapitalization plan that would put everything back into its normal (by this we mean somehow sustainable) place, the alleged time when Draghi would make such an announcement came and went... and nothing. Instead, the ECB, using the FT as its mouthpiece, came out late in the day, however not with news that Europhiles wanted to hear. As a reminder, as part of the proposed Bankia nationalization scheme, Spain would inject Spanish debt into the insolvent entity, thereby allowing it to pledge the debt for ECB repo cash. Or so the thinking went. This was, in effect, Spain's bluff. The ECB has just called it.

From the FT:

A Spanish plan to recapitalise Bankia, the troubled lender, by indirectly tapping the European Central Bank for cash, was bluntly rejected as unacceptable by the ECB, European officials said.


News of the rejection came as Spain faces elevated borrowing costs in the bond markets, tries to persuade investors it can contain problems in a banking sector weighed down by €180bn of bad property loans and, on Tuesday, saw its central bank governor stand down early.

Instead, it seems that the ECB is a fan of the old fashioned type of capital raise: one involving equity, and cash, and none of this newfangled repo monetary ponziness. Of course, the only bank that did try a capital raise by way of a rights offering in 2012 was Italian UniCredit which plunged by nearly half in the days following the announcement as a market test would clearly indicate it was woefully undercapitalized and its equity may well be worthless. This, however, does not seem to bother the ECB:

The ECB told Madrid that a proper capital injection was needed for Bankia and its plans were in danger of breaching an EU ban on “monetary financing,” or central bank funding of governments, according to two European officials

ECB's calling of the Spanish bluff also explains the earlier news of Ordonez' premature evacuation from the Bank of Spain, which we noted:

News of the ECB’s hardline response emerged as the Bank of Spain announced that Miguel Angel Fernández Ordóñez, its governor, would step down at the end of next week, a month earlier than planned. Mr Fernández Ordóñez – known by his initials Mafo, who was appointed by Spain’s previous socialist government – has been subject to increasing attacks from politicians over his failure to prevent the country’s banking crisis.

In summary:

“This is like a game of poker now,” one government adviser said, “and I don’t think Spain is bluffing”.

Well, it is. Because its cards, as explained yesterday, are all merely collateral backed by zombie banks which carry their "assets" at idiotic valuations.

So yes - in the great game of monetary poker, the ECB just called Spain's bluff. Or maybe not. Because paradoxically this may all be simply a means to crash the market, as we have been cautioning since last week, when Citi, correctly, said that Crossover would cross over (pun intended) 1000 bps, before the central banks would get involved.

In other words: yes, it is a game of cards, but one which may well have Spain and the ECB on the same side of the table, and now both have checked to Ben Bernanke, who has 3 weeks to decide if the cost of bailing out Europe, and thus US banks, is worth the printing of another $1 trillion.

We can't wait to find out.

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EclecticParrot's picture

As simple as 1 -2 -3 :  those lacking the ability to write are forced to print.

Conman's picture

I think the game is to jsut baffle eveyone with as much BS as you can that you give up and jsut go full retardo into the stock markets. Seems to be working here in the US.

Dick Darlington's picture

With all this begging from each and every insolvent european country whether it's for europonzibonds or direct monetary financing, i keep seeing the constant flash in every story i read: "socialist govt".

earleflorida's picture

Ref: "The Road to Serfdom" by Friedrich Hayek - note the parallels of Italy's Monti, the French Hollande`aise solialist sause de`jour and Brussels' conjoining 'Van Rompuy'! Oh,... and let us not forget the stalwart Merkel of Germany - soon to be disposed ?

Hayek's book speaks of the rise of totalitarianism for the very obscure evolving reasons of socialism prescribed today regarding the EU/ USA?  "Hayek thought government planning was dangerous [1930-1940's? Hitler & Mussolini et.el.]. He did not attempt to assess the merits of particular government funded social welfare regimes, many of which he believed were 'appropriate and beneficial', including subsidy for the aged and unemployment insurance. Rather, he attempted to show that there was a reciprocal relationship between growth of taxpayer-funded social programs and the diminution of personal liberty."  

This quote is strikingly parallel to the USA and EU today?  JMO

BandGap's picture

This time the printing will be more obvious and the continued sinning more apparent.

What does the Fed say when they have to explain to the American public that they will be bailing out a Spanish bank? This cannot end well.

Bastiat009's picture

The Fed will say, like it did every other time, that without its prescient intervention the world would have ended and people will go back to their everyday business. Don't forget that Americans believe that, out of 300,000,000 people, GW Bush and BH Obama are the best to lead them.

knukles's picture

Well, justifiably so, for between em, they created or saved 678,933,411 1/2 jobs.

BandGap's picture

That was old last time it was trotted out. In addition, they are running out of smoke and mirrors. 

Bananamerican's picture

"Don't forget that Americans believe that, out of 300,000,000 people, GW Bush and BH Obama are the best to lead them."


Oh Sa-NAP!!

HungrySeagull's picture


I recall some bosses that were damn good. And for every good boss there was a dozen bosses who should not be allowed to tell people what to do.

tahoebumsmith's picture

It doesn't matter how many times they throw this hot potato, everytime they do it just keeps getting hotter and hotter. No worries folks, it won't be long before these Zombie Bankers start eating each others faces...

Bananamerican's picture

yeah, the Bankers still have their clothes on...

Flying Tiger Comics's picture

Eating each other's faces. Or indeed, faeces.

Mr Lennon Hendrix's picture

Aaand....futures go from green to red. 

Conman's picture

Only to be ramped up overnight as it always is. Oh they games they play.

AcidRastaHead's picture

You make it seem like newfangled repo monetary ponziness is a bad thing.  Does ZH have any PhDs on staff to help us understand what happens when debt surpasses assets?

sudzee's picture

Assets are so 20th century.

Uchtdorf's picture

Right. We gots iStuff and don't need no assetz.

barliman's picture


QEEND      ..............

Coming soon to a global economy near you.



barliman's picture


Always the optimitist ...

"... and now both have checked to Ben Bernanke, who has 3 weeks to decide if the cost of bailing out Europe, and thus US banks, is worth the printing of another $1 trillion."

Ben will check back to the other players.  He's not playing to win THIS hand. 

He is playing to win the tournament - which will be much easier with the small fry (EU/euro backed players) out of the game, Germany buying its way back in with the new DM, China's chances crippled by the collapse of the EU exports, the Asian markets crapping in their pants, and the global political classes begging,

"Help us, Obi Ben Bernanke. YOU are our only hope."

His play at that point will be well north of $ 1 trillion USD.


hugovanderbubble's picture


Eurogroup's picture

Santander is the one to watch very closely. It can trigger some change that will blow the shit out of Herman the Unelected.

GoldmanSux's picture

Three two's beats a pair of two's

Uchtdorf's picture

You must play with the Central Bank deck of cards. None of mine have 5 two's.

youngman's picture

This is becoming disgusting used to be exciting...humorous...not now.....its a poker game with a bunch of cheaters...and each one has their own rigged deck of cards...and these are the "people" or institutions we are supposed to believe....and support...and they "work" for over....but now its who can steal the most the fastest...and they are...and the money comes from US....the little guy..and we can´t do anything about it...think about do yu "save" a bank when they are not even telling you the truth...?????  and why would you want a politician would you risk your name..your reputation on a Bank that is bullshitting you at every turn.....not me...just amazing watching this unfold...the lies..the theft...the politicians..economists...talking heads...the bankers....

HungrySeagull's picture

The last time I did poker, got a straight flush and sunk the hundreds back into the table.

Poor to riches back to normal poor in a hour.

Blammo's picture

"Ordonez' premature evacuation"............

How old am I to be laughing at this, 12  ? ? 

shovelhead's picture

In the common vernacular 'premature evacuation' is known as 'shitting the bed'.

LawsofPhysics's picture

Check to Bernake?  I think you mean pass the check to Bernanke.  Will this be lubeless? inquiring taxpayers want to know.

JackT's picture

Spain should probably start looking for some asteroids to mine.

Uchtdorf's picture

After they build hi-speed rail lines connecting all major cities with zero budget overruns, 'cause that'll really rev up the economy -- being shovel-ready and all.

HungrySeagull's picture

Railroads are faster than Aircraft these days.

Europe knows how to build and run em.

We have shit amtrack that has rusted in one overused corridor for decades.

What we can do is harness several cities into corridors at a time and boost the speed from crap 125 to 260 or so.

It will be a real alternative to driving, air travel.

What is truly awesome is when a 200 mph train wrecks, it is not the number of dead; but the actual surviving living.

hugovanderbubble's picture


Bastiat009's picture

Oops bad news from Europe, that must mean Obama is a great president, Bernanke a great Fed chairman, the US$ will rally and gold will be sold.

jal's picture

[quote]...and the money comes from US....the little guy...[/quote]

No ... its not coming from you.

YOU have been broke and spending more than you have for 30 years.

Look at the whole picture ...

Any money that you might have is due to a ponzi that you benefited from.

youngman's picture

Not the as in we.....we will be paying the bankers higher interest rates...or have inflation take our wealth away....or total colapse....but even then the bankers win..they have private jets to take them to a secure local...with most of their goodies already stashed there...Me I live in Colombia....

shovelhead's picture

"How is it possible for Greece, which represents a minor 3% of the Eurozone’s economy, to be allowed to threaten the other 97% of that economy, due to the latter’s weakness?"

Because the dopes in the ECB lent way too much money already to your crooked politicians and their cooked books?

Proving once again that fools and their money will be parted.

You could always take one of those nice spanking new German submarines and hold Hamburg hostage.

Gotta think outside the box on this one.

Mr.Kowalski's picture

"6. Bernanke's EU Rescue: I look for one of the big two EU problem kids.. Spain or Italy.. to get into some very real trouble this year. As of this writing, Italy looks like the weaker of the two, but Spain has some very real issues and an ongoing Depression to begin with. I think the ECB and the EFSF will have to be given a quick assist from The Bernank as the situation looks as though it will get out of hand. Bernanke will purchase the bonds of an EU sovereign this year directly or through a 3rd party such as the EFSF. Republicans will use this to crucify both Obama and Bernanke"

BandGap's picture

I wholeheartedly agree. The game is up. But there will be a "flight to safety" - the biggest turd in the bowl is the US, after all.  So if the Benanke doesn't start the prinitng presses it might actually look good for the US.....for a while.....

EscapeKey's picture

Alternatively, the EFSF will need to beefed up yet again... and no doubt Spain will be asked to contribute. Again.


EFSF is backed by guarantee commitments from the euro area Member States for a total of €780 billion and has a lending capacity of €440 billion.

EFSF has been assigned the best possible credit rating by Moody’s (Aaa) and Fitch Ratings (AAA). EFSF has been assigned a AA+ rating by Standard & Poor’s.


Gee, it's AAA, what could possibly go wrong?

Tuffmug's picture

So the ECB won't press the print button. No Problem. I expect Spain will announce a new method of funding the bailout of Bankia based on Keynesian Fantasy Economic  Principles. I expect them to announce the immediate opening in front of Bankia of a paella and sangria food stand with all proceeds going to the bailout. If they get to 28 billion served then problem solved. 

shovelhead's picture

Better toss in a few of those 'guest worker' Croatian hookers in the vault to maximize return.

Tuffmug's picture

Croatian hookers will be unavailable as they are reserved for servicing the Bankia bankers as a bonus for their outstanding yearly performance. 

sudzee's picture

I think the necessary "print" to save the system is so large that no-one wants to be the CB that pulls the trigger. No bazooka this time its going to need a neutron bomb.

Eurogroup's picture

That's why we need another coordinated fiat bonanza. 

And we will all print (go down) togetherrrr. 

Tuffmug's picture

The Euroeans have never wanted to pay their own bills. Every new fantasy bailout they have trotted out has required non EU money to fund it by buying billions of crappy bonds. Socialists ALWAYS want someone else to PAY!

jal's picture

The US must be socialist. They have been getting someone else to pay for the last 30 years.

They have been spending money that they don't have.