ECB's Refusal To Play Ball Means Spain Has To Foot A €350 Billion Bailout Bill Alone

Tyler Durden's picture

Moving away from baseless (or is that faceless?) European bailout rumors, and moving into cold hard math territory, we hear from JPM's David Mackie that "If a Spanish EU/IMF bailout package covered the government’s gross funding needs through the end of 2014, and included €75bn for bank recapitalisation, then it would amount to around €350bn." This may be a problem since as pointed out on Tuesday, the Spanish Fund for Orderly Bank Restructuring (FROB) is down to... €5.3 billion.

From JPM: Spain starts climbing the steps of the liquidity hospital

The ECB’s rejection of the Spanish government’s plan to recapitalise Bankia – by injecting government bonds directly into the bank which would then be used as collateral in ECB financing operations – puts Spain on the steps of the region’s fiscally based liquidity hospital (EFSF/ESM). It looks increasingly likely that it will be knocking on the door soon asking to be admitted.
Crisis management is all about burden sharing: who bears the cost of prior mistakes. Spain looks to have gotten to the point where it cannot bear the burden alone. The Spanish government recognises the need for burden sharing, but it does not want the kind of burden sharing that was made available to Greece, Ireland and Portugal. The Spanish government wants the ECB to directly purchase its sovereign debt and for the EFSF/ESM to directly recapitalise its banks.
As far as a genuine shift in credit risk is concerned, there is no real difference between ECB sovereign bond purchases and EFSF/ESM loans to the sovereign. From the Spanish government’s point of view the former is more attractive because there is no loss of sovereignty: SMP bond purchases do not come with conditionality. But, who recapitalises the banks is a huge issue. Given the likelihood that there are still a lot of losses that have not yet been recognised, a capital injection into the Spanish banks directly from the EFSF/ESM would be a boon for Spanish taxpayers. Future losses would be absorbed by the area wide taxpayer.
But, the sort of burden sharing that the Spanish government wants is not on offer. It could be argued that the government is delaying asking for EFSF/ESM help in the hope that the rest of the region will change its stance. Certainly a Greek exit would likely catalyse the kinds of changes that the Spanish government wants. But, it is not clear that Greece will exit anytime soon. Spain probably doesn’t have the luxury of waiting.
Before Spain asks for admission into the liquidity hospital we may see the SMP reactivated. But, given that the Spanish situation looks increasingly like a solvency crisis – the government is not solvent enough to recapitalise insolvent banks – the ECB is unlikely to view the SMP as an appropriate long term response to this problem. More likely, SMP purchases would simply be used to limit market turbulence while a traditional bailout package was negotiated.
If a Spanish EU/IMF bailout package covered the government’s gross funding needs through the end of 2014, and included €75bn for bank recapitalisation, then it would amount to around €350bn. A traditional package would keep the burden of adjustment squarely on the shoulders of the Spanish taxpayer. Spain could be accommodated in the liquidity hospital as currently designed, but a Spanish admission would force the region to think hard about both the size of the fiscally based liquidity hospital and its funding. It would push the region closer to a hybrid liquidity hospital, where governments provide capital and the ECB provides funding.

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THX 1178's picture

So the people at the top have decided it's time to reorganize our species, possibly our borders?

Zero Govt's picture

the rot won't stop

until we stop the rot

Stop Paying Your Taxes

Zero Tax = Zero Govt (best idea in 2,000 years)

IBelieveInMagic's picture

Pfft. 5.3 billion can easily cover 350 B with a few rounds of re-hypothecation/pyramiding. Cake walk.

THX 1178's picture

Who's the sourpuss with the cascade of downvotes?

RiverRoad's picture

And no Columbus this time......

LongBalls's picture

Dear Spain, 

Greece was a demonstration. Give up your fiscal and political rights now or else.



Lord Rothschild

falak pema's picture

is that a Catalonian repubnic or a Castillan nationalist? Merkel stuka on target?

lolmao500's picture

Good luck with that...

In other news...

Dow Jones: Regulators in looking into alleged role in Nippon Sheet Glass insider trading case.

Go Japan!

Zero Govt's picture

JPM's standard proceedure for being caught rigging the market is to single out some staff and call them "roque traders" ...someone's going to get a bullet in the head coz Jamie likes to duck below the trench and let his staff take the enemy fire ..typical leadership skills

Zero Govt's picture

"Crisis management is all about burden sharing: who bears the cost of prior mistakes."

That's advise coming from JPM who found the answer to their crisis: US Taxpayers

disabledvet's picture

instead of a plan to "save the banks one by one" they have achieved a plan to knock them off one by one. EXCELLENT WORK EUROPE! next stop: outright DEFAULT! (My guess would be France will nationalize their banking system in anticipation of such gross negligence. At this point "it's just a guess" of course. What isn't these days?)

MeanReversion's picture

Game Over.  The infrastructure will not be available to save Spain in time unless the ECB does a 180 and decides to monetize, which Frau Merkel doesn't seem keen on allowing.  Either that or Mariano Rajoy falls on his sword and accepts a bailout, which he doesn't seem ready to do because ceding sovereignty to Germany will mean his government would likely collapse and his party will be out in the wilderness for another decade.  

The endgame is nigh.

Poetic injustice's picture

It's late night of poker, and stakes are higher than ever. Spain has crappy pair of Valets, Greece has pair of Sixes and Merkel has Flush Royal. Now it is up to other players to bluff their way out.

Olympia's picture

Global Debt Crisis

The greatest private fraud of human history.
Who are the great fraudsters who are becoming the murderers of the human kind? How does the economy "illness" threaten Democracy and the freedom of people?
By knowing what happened in indebted Greece, where loan sharks created “bubbles” and the current inhuman debt, one can understand the inhuman plan in total ...understand where this plan started just to bring all states at the same end ...understand how this type of plans are established...


Lebensphilosoph's picture

That's the spirit. Drive the money lenders away like a crazed Nazarene with a whip, as it is no fault of the borrowers and spenders for taking from them their shekels with greedy hands to throw it all away in an insatiable lust for consumption that they could otherwise never have afforded. Lust, gluttony, greed and sloth are four of the deadly sins of the Greeks who are now reaping what they did sow, and we can add  to these now envy of the Germans, wrath at the bankers, and a most ridiculous national pride. One is not left to wonder at why your land of 'Greece' has been a stinking backwater since the last remnants of the Roman Empire were trampled beneath the feet of the Ottomans.

falak pema's picture

Merkel says Nein to Spanish Whine and ECB LTRO  and ESM wines.

Let The Wurlitzer Play's picture

Inject Spanish governmnet bonds into the Spanish banks?  Is that like injecting cyanide into a dying patient?  WTF??

Zero Govt's picture

yes very similar

when one patient on the ward is found to have Smallpox, move everyone in so they all catch it


Coke and Hookers's picture

It's just a direct way of handing future taxpayer earnings to bankster criminals. Bailouts are excellent opportunities for speeding up debt enslavement of the population.

This is seriously fucking bullish because it shows the Spanish Government's commitment to asset stripping their people for the financial ruling class.

Vince Clortho's picture

"This is seriously fucking bullish because it shows the Spanish Government's commitment to ass-raping their people for the financial ruling class."


A minor edit.

chubbar's picture

Spain needs to meet with Greece, Italy, Portugal, Ireland (perhaps France) and try to coordinate a simultaneous exit from the Euro. If they all did it at once it would be more difficult for the bankers to torture them individually and make an example of the first to leave. Otherwise, the end game is for each country to forfeit sovereignty.

I don't know why anyone would feel that the trillions that are eventually to be printed are any more legitimate because they originate at the ECB/ESM as opposed to each individual country just printing their own currency?

sudzee's picture

The meeting should be held in Iceland.

hugovanderbubble's picture

Spain needs more than 1 Trn Euros for a REAL BAILOUT


-Banks 350.000

-Government 700.000

-Subgovernment Tranches (comunidades Autonomas and Local Hall) 310.000



Monedas's picture

The "Liquidity Hospital" ?    Spain is going to the Betty Ford Clinic and enrolling in Alcoholics Anonymous ?    Monedas   1929    Charles Taylor, Kofi Anan, Barack Obama, Mugabe, President Zuma and Nelson Mandela......A quorum for a "Necklacing" party !

Bobbyrib's picture

Unless something is done, the EU is done by the end of the year.

Bobbyrib's picture

Nice of the Eurofools to log in this morning. Thanks for the red arrows.

slackrabbit's picture

Now kids, I know its painfulll but the longer this goes on, the more we can stack....

LawsofPhysics's picture

Wake m when there is blood in the streets, nothing changes until then.  Same as it ever was.

Poetic injustice's picture

And I have a question - did they count in losses that Argentina forced upon Spanish banks?
That could be extra 50-100billion.

gwar5's picture

Egon Von Greyerz, Matterhorn Asset Management, Switzerland:  $100+ Trillion? will be printed by central banks, and to expect global capital and currency exchange controls. You may even have to declare all your holiday money. Coming to the USA next 1-2 years?


I would be a little more skeptical, except this is exactly what the Davos Plan called for over a year ago in their detailed 85 page plan which laid the whole thing out in very specific detail. It may be time to dig that thing up and give it a much closer look.  Tens of rillions o bail banks, govrnments, and >$100 Trillion to include derivatives, private debts, mortgage enitities -- the whole ball of wax. Bullish for gold, if you can keep it.

Greyerz reminds us, derivatives were already over $1.1 Quadrillion several years ago, and they've gotten bigger since then. Says JPM may need up to $100 billion, and would be done behind closed doors.  


Hmmmm..........   "The Abyss is loverly, dark and deep. But I have piles to go before I sleep... Piles to go before I sleep."  -- Bernanke$100_Trillion+_to_be_Printed,_Expect_Capital_Controls.html





Element's picture


"But, who recapitalises the banks is a huge issue."


Nah ... stand back and let it write itself off, problem solved, switch off the lights, close the doors, then walk away and agree to never speak of it again ... oh, and imprison the resident-evil (zombie banksters).

A 'Null-Universe' is one where all the matter and energy in the cosmos mutually self-cancels to nothing.  i.e. it can go back to it's original state and the anisotropic space illusion of 'solidity' and 'force' just disappears, yields to the deeper truth.

But here we have a Cosmological Crimogenic 'Null-FiAt-Universe'; where all fractional-reserve debt-money can mutually self-cancel to nothingness.  Mutually-annihilates to zero.  i.e. goes back to what it actually is and the illusion of debt and usury disappears, as it yields to the deeper truth.

nullified bitches

ElvisDog's picture

A traditional package would keep the burden of adjustment squarely on the shoulders of the Spanish taxpayer

Hah, that's a good one. What's the unemployment rate in Spain again? Who are these mythical taxpayers that will pony up to repay the 350B Euros in bailout loans? I really think that Euroland will be the end of the ponzi because they are so completely incompetent at keeping it going. At best there is one more round of "we'll give you a bigger loan to pay off the current loan" games.

BlackVoid's picture

Good news. Finally a bank will go BANKRUPT.

Bring it on.

monad's picture


Please Ben. Ken I haz more dollars? Please? Pretty please?

Oh God dammit Ben, I'm hurting! You bastard! You know this is all your fault. Come on! Just this once!

C'mon Barry. I'll change. Really. I messed it all up. I'm lost without you. I won't do it again! PULEEASE!! Look Barry, I'm crying! See these tears? You're breaking my heart, sugar. I'll die without you! I can't live with out you! Take me back. Oh, Barry. Please, take me back. I'm sorry!