Spain IS Greece After All: Here Are The Main Outstanding Items Following The Spanish Bailout

Tyler Durden's picture

After two years of denials, we finally have the right answer: Spain IS Greece. Only much bigger (it is also the US, although while the US TARP was $700 billion or 5% of then GDP, the just announced Spanish tarp is 10% of Spanish GDP, so technically Spain is 2x the US). So now that the European bailout has moved from Greece, Ireland and Portugal on to the big one, Spain, here are the key outstanding questions.


1. Where will the money come from?

De Guindos, Schauble and the Eurogroup, all announced that the sole source of cash would be the ESM and/or the EFSF. The problem with this is that the ESM has yet to be ratified by Germany, whose parliament said previously it is sternly against allowing the ESM to fund a direct bank bailout, something which just happened. Thus, the successful German ESM ratification vote, whenever it comes, and which previously was taken for granted, now appears to be far more questionable.

Which leaves the EFSF. The problem with the EFSF is that there is about €200 billion in dry powder. And this includes the Spanish quota of €93 billion, which we can only assume is now officially scrapped.

Which brings us to a bigger question: now that Spain is officially to be bailed out, what happens next. And by that we mean of course the big one: Italy. Recall that as we posted in Brussels... We Have A Problem, once the contagion spreads again to Italy, and that country also needs a bailout, it is game over. From the world's biggest hedge fund Bridgewater:

In other words, it is very likely that the funding for the Spanish bailout will have yet to be procured. Who will provide cash which is virtually certain to disappear forever in the Spanish real-estate market mismarking vortex?


2. Where will the money go?

According to the de Guindos press conference, the bailout cash will go to the FROB, or the Fund for Orderly Bank Restructuring: as the name implies a sinking fund to fund insolvent banks. This is merely a liquidity vehicle to net out evaporating capital due to realistic marks of assets, or ongoing deposit flight. However, a far bigger concern is how will the FROB be treated from a sovereign debt perspective?

As was noted previously, the bailout will come in the form of a loan, which while at better terms than market, will still result in a material increase in Spanish debt/GDP. In other words, while the bailout itself may have been without sovereign conditions, it will still impair the country in the eyes of sovereign creditors. And just as important is the mention that the loan will have "better terms than market" - this implies added security compared to general Spanish obligations. Hence priming.

Recall the official breakdown of the complete Spanish debt, presented here courtesy of Mark Grant 2 months ago:

The Data

Spain’s GDP                                                $1.295 trillion


Admitted Sovereign Debt                                 $732 billion
Admitted Regional Debt                                   $183 billion
Admitted Bank Guaranteed Debt                     $103 billion
Admitted Other Sovereign Gtd. Debt               $ 72 billion
Total National Debt                                         $1.090 trillion


Spain’s Liabilities at the ECB                           $332 billion
Spain’s Cost for the EU budget                       $ 20 billion
Spain’s Liabilities for the Stabilization Funds   $125 billion
Spain’s Liabilities for the Macro Fin. Ass. Fund $ 99 billion
Spain’s Guarantee of the EIB debt                  $ 67 billion
Spain’s Total European Debt                           $643 billion


Spain’s National and European Debt                $1.733 trillion

Spain’s OFFICAL debt to GDP Ratio                     68.5%

Spain’s ACTUAL Debt to GDP Ratio                  133.8%

* * *

Now we have another €100 billion or so in admitted sovereign debt to add to the top of the list. In other words, total Spanish admitted debt will likely increase by up to 17% from $732 billion to $857, adding the $125 billion FROB "loan."


3. What happens to Spanish sovereign debt?

Perhaps the most important thing to note in the above analysis is that the FROB loan is effectively a priming DIP: think Troika loans to Greece, Ireland and Portugal.

In other words, Spanish bondholders just got their first taste of subordination!

Basically, first thing Monday the trade off will be: does the temporary improvement in bank solvency offset the fact that bonds just got primed, hinting at a future that in the case of Greece has resulted in the old Greek bonds trading an equivalent price of sub 10 cents on the dollar.

How long until Spanish bondholders get the hell out of Dodge, knowing quite well that their Spanish bond holdings will suffer the same fate as GGBs?

Our advice for those who need to have exposure, as we wrote 5 months ago: sell local-law, covenant-lite Spanish bonds, and buy their UK-law, covenant-protected cousins.

Then sit back and watch the spread explode.


4. Precedent

Naturally with Spain now officially biting the bullet, the only question remaining is: when is Italy going to drop next.

And ironically, what just happened, is that the Eurozone, with the tacit agreement of Germany, essentially gave insolvent banks a green light to short themselves into a full bailout.

How long until Italian banks get the hint, and proceed to short each other, or themselves, either with shares of stock or , better yet, through CDS which unlike in the sovereign case, can be held without an offsetting cash basis position. In other words: is it time for the Italian bank suicide trade?

Because only when they are on the verge of nationalization, will Italian banks be rescued. And remember: he who defects (or in this case drops the fastest), first, reaps the biggest benefits of the resultant action.

We also wonder how will Ireland feel knowing that it has to suffer under backbreaking austerity in exchange for Troika generosity, while Spain gets away scott free.

Finally, there is the question of how today's action will impact the Greek elections. As noted earlier today, today's precedent will likely serve as a huge boost to the popularity of Syriza. Oh yes, the Greek elections next Sunday. Remember those, and the whole Grexit thing?


5. Market reaction

The long-term reaction is obvious: this latest confirmation that Europe is a sinking ship has been predicted by many for years. As such, that European risk markets will continue sinking, and capital flows continue rushing to Germany, is a given. In the short run, however, courtesy of a new all time record high number of EUR shorts (at a record -214,418 net non-commercial contracts as of this past week) it is likely we may see an aggressive short covering squeeze.

This will send all risk higher as well. Of course, the really is to be faded aggressively as soon as the weak-hand shorts capitulate and cover.

* * *

For those curious just what this mysterious FROB is, which simply stated is, or rather was, a woefully underfunded FDIC equivalent, and is now the Spanish banking system loophole, here is a succinct presentation:


* * *

Finally, for those wondering if today's action will halt the catalyst for the entire move, namely the furious bank run that Spain has been experiencing in the past month, we don't know. It likely all depends on how many Spiderman towels are in circulation and held in inventory by Spain's insolvent banks.


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carbonmutant's picture

"How long until Spanish bondholders get the hell out of Dodge, knowing quite well that the same fate as in Greece is coming to Spain?"

Good one.

Ookspay's picture

Morgan Stanley will be the next lehman... They have tremendous exposure from european banks. They are currently tapping cash in an effort to protect their ill fated positions.

BTW: Ookspay only capitalises personal pronouns and words that he likes...

eatthebanksters's picture

Maybe they could sell their Faceplant shares for additional capital?

old naughty's picture

Oh sht...that will bring it down a few notches single digit?

Fluffybunny's picture

The Spiderman-towel comment at the end really depicts the absurd and hopeless situation of EU.

neptunium's picture

I have a question actually, from the various knowledgable posters here, how long until this "death spiral" actualises? I mean, what is the ETA on the end game for the ECB/Euro - Does Germany capitulate and introduce Eurobonds or are we now seeing the terminal phase of descent? 

The thing that has surprised me throughout this last year is the mutualisation or stockpiling of risk - if the writing IS on the wall then how bad will the final implosion be?



markmotive's picture

Ahhh, I remember when Greece received its first bailout. The crisis was but a babe then.

A fate worse than Lehman looms over our heads.

Michael's picture

What's wrong with forcing private bankrupt banking corporations to file for bankruptcy, then broken up and assets sold off?

New bank charters can be issued by countries with bankrupt banks to new solvent banking corporations.

knukles's picture

And there is deposit insurance to boot.

But then again, drama being the order of the day... er month... er years... why not just declare the whole of Europe and all it's interlocking financial institutions which are all chock a block stuffed full to the gills with one anothers dead as a doornail paper as done gone and rancid and just bil the whole bloody thing out at once.
They're gonna get the funds from themselves in any case and no other country (ies) has enough buckaroos anyway, so  why not...

Er, that's the problem, no?
There's no money left, they gone went and printed too much of the stuff.

No fucking wonder the bullion banks were slamming the crap out of gold this last week.
Stomp all over it during the week, announce the shit of Friday night, continue through the weeks end.

Who said there were no conspiracies?

oldman's picture



The banks are showing the 99% what the word 'solidarity' means-----

We could take a lesson from this, but, alas, we won't----better to whine about 'they', 'them', 'tptb'. and continue stressing our differences than to come together.

Not personal---I liked your comment, but just wanted to shift context     thanks, om

AssFire's picture

This is the same mistake that sunk Ireland. Why is the public being made responsible for the incompetence of the bankers? It is time for these governments to follow Iceland's approach and shut down the bad banks.

Ookspay's picture

Weren't you listening? TOO BIG TO FAIL is what they told us... It worked beautifully in 08/09, now it is just a given. No arrests, no riots, no mobs, nobody did shit! And the beat goes on... I scan the headlines, but I never see prosecutions, assassinations or suicides of any of the perps involved. They got away with it, and are still doing it.

TruthInSunshine's picture




"Material Banknote Order Reinstated" | ZeroHedge


Fiat worthy paper is gonna' be on backorder soon, bitchez.

Buy your Krugmanite* rounds ASAP.


*Krugmanite rounds are coins containing 50% tin and 50% pyrite (aka "fool's gold"), with the likeness of the Bearded Nobel Laureate Economist & advocate of provoking an extraterrestrial invasion of earth, Paul Krugman, engraved on one side, and the Bearded Time Magazine's 'Man of the Year' Chairman of The Non-Federal Reserve-less Bank, Ben 'Lightyear' Bernanke, engraved on the other side. The Latin words "Debitum Causa Mortis" are masterfully etched (by a chimpanzee working on a lathe) around the border of this shiny and spectacular coin. Order yours today from The Franklin Mint for the low, low price of $19.95

luna_man's picture



"Ookspay", ain't no reason to get all worked up!...

"chickens are coming home to roost"..."It's a small world after all".


Remember, no prisoners!!


Ookspay's picture


LMFAO! Actually, I am eerily calm...


tocointhephrase's picture


Edit: Oh just got a 1/10th of this coin yesterday. £5. LMFAO!

erheault's picture

  You can bet your swet bippy that Big Ben is passing boat loads of dollars to the European syndicates as we are tied to the world banking system wheather we like it or not the whole pyrimid scheme is going to topple the only unknown is when. 

nmewn's picture

Vhat iz dis strange new bidness model ju speak of?

Ze fascist regulations clearly state "All bad deeds committed on behalf of the state go unpunished and a monetary bonus will be awarded." Ve vill maintain ze moral hazard & ze debt enslavement of all at any cost to ju.

Seig Heil ;-)

Rodent Freikorps's picture


I and so glad you are still here and kicking ass. I'm sorry I needed some R&R.

I'm back and ready to take scalps. You can be the voice of reason.

Rock on, Nmewn.

nmewn's picture

Freikrops old friend, good to hear from you again! I always have trust & faith that when my mates return from the mist they are reinvigorated.

And well

Nothing much has changed...the fascists still control the high ground...but they are beginning to notice it's moving beneath their feet ;-)

New_Meat's picture

RFk, in my best Rummy imitation: "My, oh my."

- Ned

RiverRoad's picture

Right on "Michael".  Why shouldn't profligate banks go bankrupt just like everybody else?  When the world was booming, these guys ran around grabbing bank charters and setting up banks on every corner like lemonade stands hoping to sell them off before the music stopped.  There's no reason to make these guys whole.  If it's such anathema to give handouts to the poor, why the hell are we bailing out the rich who will zipp that money into tax havens anyway?  Europe is a bottomless pit.

The Monkey's picture

The problem is that each intitution's liabilities are counted as anothers assets. Due to the excessive leverage in European banks, a major default could cause a chain reaction and bankrupt the world's financial system. Even if Europe continues down the bailout path, a slower fuse continues to burn - rising interest rates on peripheral sovereign bonds.

This is a nightmare for policy makers and is made 100X worse given the political backdrop. Kindof an Apollo 13 situation.

darkpool2's picture

I will take this comment one step further, and venture that UNTIL this process is permitted to happen, and until the system is thoroughly flushed, the economies of the so called developed world cannot and will not get back to self sustaining growth. There are plenty of potential technological growth engines , but the present system is crushing entrepreneirial drive and economically efficient risk taking. Those with resources are sitting on their hands and protecting what they have. Sure the flush will be mighty painful, but just as a disease gets worse without treatment, we have let the political class take over and they are almost by definition incapable of the necessary tough decisions. Only the markets can eventually restore sanity.
We may as well all try to crash the system sooner rather than later, get it over with so we can move forward. Just what it will take and the timing thereof, are the great unknowns.

victor82's picture

Uh dude, in the case of the United States, the politicians they own won't get the kickbacks and contributions they used to if these so-called "private" banks go tits up.

The last thing the politicians want is for one of their prime sources of cash to go Thin Banana.

Same as under Obama as under Bush: State Capitalism.

Very Soviet. Kruschev promised that he would bury us, and he was right.

poldark's picture

Assets? There is not much demand for used bus tickets and chewing gum!

Mugatu's picture

If what I read is right, 37% of the bailout comes from Italy and Spain.  

Its like: if the US automakers in 08 were bailed out primarily by the US automakers.  Does that make sense?

John_Coltrane's picture

Yes, grasshopper you grok it well.  To summarize: fractional reserve banking is a ponzi whose only rule is he who panics first panics best. 

As I commented earlier, I decided to loan myself $1M, felt I was doing well indeed until I realized I was now $1M in debt.  In other words 1-1 =0 no matter how much you try to fake it.

Jendrzejczyk's picture

You need to loan me a million $, and I'll loan you a million $.

Then we'll both have assets and be rich, right, RIGHT?

unununium's picture

That comment may just get you an invitation to become an acolyte banker. Well done!

Michael's picture

The powers that be will yank bricks out of their asses to save their prole orifice money sucking scam known as the international banking cartel.

Ookspay's picture

Yeeep! Get ready for "The Big Lie."

"Honey I swear, I was NOT fucking her, who you gonna believe me or your lyin' eyes?'

LeisureSmith's picture

"I slipped on a banana peel and fell cock first into her veejay, it was an accident i swear"

Jean-Claude Juncker.

OneEyedJack's picture

No one can answer the question "when", and if someone predicts a actual date, they are labeled as crazy.

What I see is that there are two things that cannot be denied.

1. common sense

2. math

This will end one day, but for now appreciate the extra time to prepare. This kind of reminds me of the movie Inception, during the movie a van left the bridge heading for the water. During the movie this was very slow motion, with all kinds of events occuring in the background.

This is what we are living through now, a slow motion wreck. But as far as history is concerned, it we be recorded as brief.

erheault's picture

The math being Compound interest on all of these multi billion euros/dollars/or whatever else that is pleged for the loan. It is a hydra head to see who gets bit first. 

Seer's picture

"The Spiderman-towel comment at the end really depicts the absurd and hopeless situation of EU."

The Spiderman-towel comment at the end really depicts the absurd and hopeless situation of the ENTIRE GLOBAL FINANCIAL [fiat] SECTOR.


The EU doesn't have a lock on this.  The US would have crashed and burned well before now if the USD wasn't the world's reserve currency.  And there's also China and Japan.

DanDaley's picture

Oh sht...that will bring it down a few notches single digit?

Is zero considered a digit?

Olympia's picture

We have reached the ultimate limits of shabbiness ...where “Enough is Enough”. Banking system and currencies should return to the people. There should be a discrimination of the currency nature in the two sides of the ocean ...its “security” part and its “bond” part should be separated. There should be a discrimination between what it describes the real value and that “value” that results from the addition of interest and “returns”. What does this mean in practice? There shall be an arrangement in favour of the people as far as the social security funds and the private deposits are conserned, so that currency becomes again a security. All the "rest" may be returned to the bankers and the loan sharks. This is whatever is described as debt and interest may be returned in the form of the well-known balls...

banks should be left to bankrupt so that they come under the national control for free. It is banks that should become public not their debts, as it happens today. Their owners should be led to prison for high treason and all their assets should be seized. All the bonuses, that their staff received due to their loan sharking “successes“ should be given back. Justice should be restored to face this blood-thirsty gang of beasts who made people sweat blood Courts should nail the “Markets” and put them on trial for crimes against humanity.

macholatte's picture



So does this Spanish bailout dovetail with the Raoul Pal "Big Reset" 12/12 scenario or push it back another year?


The can shall be kicked!

"So let it be written. So let it be done."


The Monkey's picture

The Raoul Pal scenario is not on the table. Spain is not Greece, and there will be a point where the EU will effectively firewall.

That said, we still are inevitably looking at a global recession and lower prices. Global leaders have to accept the inevitable. Prices are way too high.

Rip van Wrinkle's picture

Firewall with what? Shirt buttons?



upWising's picture

Just like they do with the Christmas trees, you can FIREPROOF the Spiderman towels and hang them on the border fences around countries in economic "distress."  That should contain the contagion.

Jena's picture

You roll the Spiderman towels up and put them at the bottom of the door to keep the smoke out.  That way, you are less likely to die of smoke inhalation (yay!).  

You will, however, probably still burn to death.

Marginal Call's picture

You coat the towels in smallpox and hand them out in Madrid.  It worked for our Indian problem. 

Jena's picture

Too much blowback.  Air travel.  Nix.

knukles's picture

I still wonder who and why it has persisted, calls this a contagion.?

A contagion simply means that something spreads.
Like strep throat or mononucleosis or polio or crotch rot.

Contagion does not address what the fucking malady is, like some strange disease somebody caught butt fucking a monkey on Plum Island.  The disease in this case is a de-leveraging from an absolute debt binge which has resulted in financially failed entire nation states on a global scale.
Oh, who, which, you ask?
Thems thats being bailed out.
They're being bailed out because they've financially failed.

Contagion, my ass.

unununium's picture

Yes. Contagion is the wrong metaphor.

We got ourselves a canary in the coal mine situation here. In fact, we may be all the way up to parakeet.

Jendrzejczyk's picture

Italy is bringing in an ostrich.