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Rajoy Says Spain May Not Need A Bail Out After All

Tyler Durden's picture




 

Europe's chicken or egg problem is about to strike with a vengeance. As a reminder, the biggest paradox of the recently conceived "make it up as you go along" bailout of Europe is that "in order to be saved, Spain (and Italy) must first be destroyed". Sure enough, the markets have long since priced in the "saved" part with the Spanish 10 year sliding to multi-month lows, but in the process everyone forgot about the destruction. Because as has been made quite clear, secondary market bond buying will not be activated without a formal bailout request by a country, in essence admitting its insolvency, and handing over domestic fiscal and sovereign control to the IMF and other international entities. As a further reminder, many, Goldman Sachs especially, had hoped that Spain would request a bailout as soon as Friday. To wit: "With a large (and uncovered) redemption looming at the end of October (and under pressure from other Euro area governments), we expect Spain to move towards seeking support." Alas, as we expected, this is now not going to happen, and the pricing in of the entire "saved" part will have to be unwound as Spain is forced to accept being "destroyed" first. To wit: "I don't know if Spain needs to ask for it," Rajoy told parliament in a debate session, referring to an international rescue for Spain."

And ironically the further the market prices in salvation, the more unrealistic a bailout request becomes. In the meantime Spain is running out of cash, and what has been a buying euphoria may well becoming a selling revulsion as the market realizes that without the ECB's explicit bond buying support, there is no reason to buy the bonds of a country with 25% unemployment, a massive budget deficit, an imploding housing market, and insolvent banking system. But who cares about details in a centrally-planned world.

From Reuters:

Spain continues to study the price it will have to pay for seeking help from the European Central Bank's bond-buying programme but improved market conditions may make aid unecessary, Prime Minister Mariano Rajoy said on Wednesday.

 

"I don't know if Spain needs to ask for it," Rajoy told parliament in a debate session, referring to an international rescue for Spain.

 

Yields on Spanish bonds have fallen dramatically, to five-month lows, since the ECB agreed last week to launch a new bond-buying programme to reduce struggling euro zone countries' borrowing costs provided they first request assistance from the euro zone's rescue fund and abide by strict conditions.

 

Earlier, in an interview with Finnish newspapers, Rajoy said he had no objection to the International Monetary Fund monitoring Spanish compliance with the conditions for any assistance although he has also insisted that no fresh demands should be made on Spain in terms of cutting debt.

 

"The IMF is already monitoring our economy," Helsingin Sanomat quoted Rajoy as saying during a visit to Madrid by Finnish Prime Minister Jyrki Katainen on Tuesday.

 

Spain, which has already secured European rescue funds of up to 100 billion euros ($128.5 billion) for its troubled banks, is also struggling with its fiscal deficit, indebted regions and pressure from credit rating agencies.

 

"In addition to growth, the only option I am considering is using the central bank's announced mechanism," Rajoy said, according to Helsingin Sanomat.

 

"It is completely ruled out that we would ask for a bailout for the whole country," he told business daily Kauppalehti.

 

His comments indicated Spain may apply for a precautionary assistance programme under which the euro zone's rescue funds could buy Spanish bonds as they are auctioned without the country being taken off the credit markets, rather than the kind of full sovereign bailout granted to Greece, Portugal and Ireland.

 

The conditions on a precautionary programme would be lighter, and the cost to the rescue funds of supporting the euro zone's number four economy would be lower.

Of course, Rajoy's intransigence has only one outcome - the same outcome that Sylvio Berlusconi was met with when he refused to comply with the ECB's demands in November of 2011. In other words, Spain may be the latest country to have its own technocrat leader in a few short months/weeks, but not before the entire surge in Spanish bonds is first unwound.

 

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Wed, 09/12/2012 - 07:16 | 2784758 HD
HD's picture

One wonders if a technocrat would ever be appointed in the United States...

Wed, 09/12/2012 - 07:32 | 2784801 magpie
magpie's picture

Professor Ben S. B.

Wed, 09/12/2012 - 08:18 | 2784980 GetZeeGold
GetZeeGold's picture

 

 

The S stands for peas.

 

Wed, 09/12/2012 - 08:32 | 2785044 I am more equal...
I am more equal than others's picture

No one asked for the Spanish inquisition and no one expected it either. 

Wed, 09/12/2012 - 07:33 | 2784808 No Euros please...
No Euros please we're British's picture

GS control centre is in the US, they don't need a technocrat, just a muppet.

Wed, 09/12/2012 - 18:37 | 2787690 Colonel Klink
Colonel Klink's picture

Ironic that the word technocrat ends in the word RAT!  Same works for Bundesrat and democrat.  Should make the spelling republicrat.  Because they're ALL RATS.

Wed, 09/12/2012 - 07:18 | 2784767 dlmaniac
dlmaniac's picture

What da ya do when it becomes serious?

Wed, 09/12/2012 - 07:30 | 2784793 HD
HD's picture

They don't have to lie anymore - they actually believe their own bullshit.

Wed, 09/12/2012 - 18:37 | 2787691 Colonel Klink
Colonel Klink's picture

RUN!

Wed, 09/12/2012 - 07:18 | 2784768 schatzi
schatzi's picture

The speed at which Goldman Sachs is promoting their ilk to the European leadership, you'd suspect they'd be running out of vice presidents by now.

Wed, 09/12/2012 - 07:23 | 2784777 dlmaniac
dlmaniac's picture

They could arrange a merge, like Italy taking over Greece, Spain taking on Portugal or sth.

Wed, 09/12/2012 - 07:20 | 2784773 apberusdisvet
apberusdisvet's picture

Its always been about assuming totalitarian control, through the control of the purse strings.  Everything else is just a dog and pony show for the naive and clueless.

Wed, 09/12/2012 - 17:57 | 2787612 Sweet Chicken
Sweet Chicken's picture

Same as it ever was.

Wed, 09/12/2012 - 07:29 | 2784790 Temporalist
Temporalist's picture

Video of Rajoy discussing bailout:

http://www.youtube.com/watch?v=j3-lIOO5KYE

Wed, 09/12/2012 - 07:33 | 2784806 elwu
elwu's picture

Spain doesn't need to ask for a rescue programm, because Draghi will buy bonds on the secondary market nevertheless.

The part about ties attached you can forget, as well as stopping the buying if a country doesn't stick to the agreements made.Check with the Troika and Greece...

 

Wed, 09/12/2012 - 07:38 | 2784823 Bogdog
Bogdog's picture

EUR/USD into the basement with a by the end of the week, month, year? 

Oh, I give up.

Wed, 09/12/2012 - 08:02 | 2784846 timbo_em
timbo_em's picture

Rajoy is a politician (not the brightest of all) and hence he will deny any bailout rumors until the MoU is signed and even after the MoU is signed the bailout will not be called bailout.

Furthermore and if I remember correctly, on Oct 21 regional elections will be held in some Spanish regions. By now it should be clear how the great leaders of Europe roll. In order to stay in power or get (re-)elected they'll say about anything the public might want to hear even when the public already knows better.

Wed, 09/12/2012 - 07:47 | 2784853 youngman
youngman's picture

Or he is setting up his exit..he can show he NEVER wanted a bailout and save his career...his legacy

Wed, 09/12/2012 - 08:44 | 2785101 Coldfire
Coldfire's picture

Rajoy is a lying sack of shit. (All due respect).

Wed, 09/12/2012 - 09:02 | 2785167 RobinHood73
RobinHood73's picture

How much time does Germanys 190 billion buy?

Wed, 09/12/2012 - 09:22 | 2785271 AynRandFan
AynRandFan's picture

There just is no room for cynicism, or reality for that matter anymore.  We all live in a yellow submarine called "unlimited monetization", on our merry way to port of "hyperinflation".  And our friends are all aboard.  Many more of us live next door.

Wed, 09/12/2012 - 09:56 | 2785426 shovelhead
shovelhead's picture

But you can watch Rajoy for free.

Usually you have to pay to see comedians.

 

Uh, sorry N. Europeans...

Never mind.

Wed, 09/12/2012 - 10:00 | 2785459 The Reich
The Reich's picture

I'll give Rojoy four weeks - 8th Sept to be precise - when the ESM will have it's initial meeting.

Wed, 09/12/2012 - 18:39 | 2787696 Colonel Klink
Colonel Klink's picture

Ramjob - which is exactly what he's doing to his own people.

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