Spain Refuses To Be Bailed Out If There Are New Conditions

Tyler Durden's picture

And so the fly in the ointment arrives as beggars are not only choosers but have completely lost their minds. As we explained very, very clearly over the weekend in "In Order To Be Saved, Spain And Italy Must First Be Destroyed", the market, courtesy of its primary function of discounting being completely and utter distorted and destroyed thanks to central planning, "priced in" the fact that Spain will be bailed out in the only possible way: by making a Spanish bailout next to impossible, sending its bonds so much higher that Rajoy could not possibly see any need in demanding a bailout (something which as Art Cashin explained further today will very much infuriate Obama). Well, as often happens, we may have been ahead of the market by a few days. And reality as well: because as of minutes ago Spain's PM confirmed precisely what we warned against - that by frontrunning Spain's destruction, and hence rescue, it has doomed Spain to a fate far worse. From France24:  Spain will not seek eurozone financial aid beyond an agreed rescue for its banks if more conditions than those already agreed for recapitalising lenders are attached, an EU source said Tuesday." The problem is that if and when the inevitable bailout demand comes, not only will there be more conditions, but Spain will effectively cede sovereignty to the Troika explicitly, and to Germany implicitly (for the full breakdown see here). Which again begs the question: which came first - the market frontruning the bailout or the government refusing to request a bailout on the market frontrunning the bailout and so ad inf.

This is what we said 3 short days ago:

Therein lies the rub: by pushing the funding costs on the short-end far cheaper, both Rajoy and Monti are now certain to not even consider asking for a bailout - after all the market just validated their failed policies (or so they think)! To the career politician and unappointed technocrat, instead of having to ask for aid, the market's response is one which precludes said aid request... Until, at least such time as the market realizes it was once again manipulated by politicians.




the issue is that by formally admitting failure, it means the end for the current administrations, and a career end of many politicians, for whom preserving their jobs is a matter of survival. It also means civil unrest and disobedience, as it means the ascent of the Troika (and implicitly Germany) to the highest level of government control; what it means to the local citizens is one simple thing: relinquishing sovereign control to an external presence. For those who are unfamiliar with European history, the best laid plans which have as their weakest link the assumption that any proud people will willingly cede to foreign control, always are doomed to failure.


Yet this is precisely what the bond market assumed when it sent Spanish and Italian bond yields plunging in the past week.


We give what is left of the market a few more days before the delayed correct re-reaction once again establishes itself, and the push for a formal bailout leads to curve inversion all over again, only this time more jawboning will not be enough, and neither will be Draghi's solemn invocation to "believe him." That bridge has now been burned.

And now back to Spanish bond yields soaring in hope that Spain will "agree" to being bailed out.

The rest from France24:

Prime Minister Mariano Rajoy is under pressure to call in financial assistance for the Spanish state, not just its banks, but is holding off awaiting a European Commission assessment of new spending targets drawn up for 2013 and 2014.


The Spanish government said on Friday it planned savings of 102 billion euros ($125 billion) by 2014 as it stepped up efforts to bring its strained public finances back within 3.0 percent of gross domestic product, the normal EU limit.


That assessment is unlikely to be complete until mid-September. Eurozone finance ministers are due to meet on September 14-15 in Cyprus, itself in dire financial straits and possibly in need of aid following talks on loans from ally Russia.


"If the Commission considers that the [Spanish] budgetary plan is satisfactory, there will not be a need for further conditions," the EU source said of Rajoy's position, referring to terms for any subsequent loans from the European Financial Stability Facility or mooted European Central Bank intervention in short-term bond markets.


In June, Spain secured a 100 billion euro credit line from the EU for its stricken banking sector but investors fear that with its borrowing costs rising, the country may in the end need a bailout.


Last month, Brussels gave Spain an extra year to balance its books, saying it must bring down its public deficit to 6.3 percent of GDP this year, 4.5 percent next year and then 2.8 percent in 2014.


After Spanish borrowing costs skyrocketed in the interim, ECB chief Mario Draghi last week raised the prospect of direct intervention in the bond markets so as to bring down eurozone borrowing costs -- but contingent on government support and subject to conditions.


"I want to know what these measures are to see if they are adequate," Rajoy said afterwards. "Then I will take the best decision for the general interest of the Spanish people."

Here we doubt we have to explain that by "Spanish People" he really means just one Spanish "person"

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
transaccountin's picture

how exactly is a bailout good if they get one? free imaginary money to bid up oil some more....

SeverinSlade's picture

We shouldn't even call fiat money any more.  Just call them Federal Reserve IOU notes.

El Oregonian's picture

The Conquistador looks to be getting rightously Conquista-Gourd!!! By the Troika...

mkkby's picture

Actually I think Tyler/ZH has this one wrong.  Spain is not the begger.  Obama and France are.  Spain can play chicken threatening to let the banks go under. 

Remember, bailouts are happening NOT TO ASSIST THE SOVEREIGN, but to bail out the banks and get poliiticians like the Kenyan muslim re-elected.  Spain and Italy have the power this time.

andrewp111's picture

Exactly. Spain can say either you bail us out with no conditions, or we will exit the Euro, repudiate our debt, and sit back eating popcorn watching the German and French banks implode.

Of course, the French do have nukes, a fact that people sometimes forget.

StychoKiller's picture

How would irradiating your neighbor make you any richer?

withnmeans's picture

NO, here is the rub:

Or should we say squeeze, on some balls...

Spain and Italy both know that they will get bailed out if TSHTF. Germany knows if they don't bail them out its all gone.

So, is it the Germans with there Nuts in a vise, or is it Spain "soon to be Italy".

If I were the Loan Shark here "in the real world, there would be bullets flying" I would cut them off. Don't give them a dime Germany or you will go down with this sinking ship.

Just like any "actual working" business, if your not successful you fail, you either pick up the pieces and start over or your done. Make them get solvent on their own, giving an addict more drugs does not make them fix their problems.

Vaiman's picture

Does it matter what they say anymore???   They change their minds and words like people change the channels on their televisions!  Maybe that's why the markets don't react to any of the negative jargon anymore.  One minute they are going under and the next they have lifeboats miraculously show up

SGS's picture

Re read the title of this article and ask yourself how ridiculous it sounds.  Say it out loud like a child would.  It will hit you hard.

The trend is your friend's picture

didn't bush make a comment once on "worthless IOU's" sitting in the SS fund

SeverinSlade's picture

Precisely the same thing happening with regards to QE3.  The market continues to BTFD at every opportunity, thus pricing in any future LSAP.  Everyone's calling for QE3 in Sept?  Unless we get a negative NFP print paired with the S&P well below 1300, sorry folks, ain't gonna happen. 

Ahmeexnal's picture

this is how it will work out.  global market ban on short sales.  qe3 publicly put on hold (or downright thrown out the window). market panic. big players BTFD.  qe3 announced.  WWIII.

SeverinSlade's picture

First Syria, then Iran. 

Anyone notice how more and more TV shows/movies have a very strong militaristic message?  That latest one, the one with 10 B-List celebs pretending to be Rambo...Yeah, that isn't telling AT ALL. 

fattail's picture

Interesting... I hadn't thought of that angle, although it goes so well with our societies fascination with flag waving (just as long as they don't have to actually join up or get shot at) and worshipping of all things owned and sponsered by the military industrial complex.

Kind of like all the Mormon shows on TV now, softening up the population for the new prosethletyzer in chief.

Non Passaran's picture

Yep here we go again, the American Ahmedinajad here is again calling for WW III.
Moments of peace cause him pain.

Amish Hacker's picture

I guess I just don't see what good it will do to bail out the Spanish banks if the Spanish national treasury is busted.

PS: I can't wait to find out who that lucky Spanish person is.

SMG's picture

While this sounds bad, as much of the news, they keep delaying doomsday.  The Oligarchs could push the self destruct button at anytime, could have even done it in 08.  Any guesses as to when it gets pushed. Could be anytime between now and I would guess the next year at the most.

I personally am thinking in the next month or so, or after the end on the year.   Feel free to openly speculate.

cossack55's picture

I was very confused until I remembered that it is all bullshit anyway.  I'm much better now.

HaroldWang's picture

Spain will definitely ask for a bailout. Any spin/rhetoric from politicians is just to give the citizens the impression that they're "looking out for their best interests". Then, they'll have no choice but to ask for the bailout which in turn will serve as yet more fuel for the markets here. 

The easiest play on this is go long SPX to 1425 area and see if the timing of the bailout coincides with the breakout in our market at that time.

jtmo3's picture

Why is it, all I hear is Blah, Blah, Blah, Blah?

SKY85hawk's picture

Because the Tyler get advertising revenue from political sources.  And THEY don't want to admit that Spain's problems are mostly due to the rampant mortgage frauds committed in ALL the regional banks of Spain!

?Where else has that happened?


CrashisOptimistic's picture

Here's a different word for you to hear over and over.



If ECB or IMF buys Spain bonds, will they subordinate private bondholders, and if they do, that's that for those folks.  They saw Greek PSI.  They will DUMP NOW.  NOW, before it's too late.  And there is no way in hell the Troika will commit taxpayer money to buying those bonds unless they go to the head of the queue.

Subordination is the word of the day.

machineh's picture

Or in Rajoy's case, 'insubordination.'

Why can't he just read from the script he was given?

andrewp111's picture

If the ECB declared that Spanish and Italian 30 yr yields will not rise above 3%, and that the ECB will buy unlimited amounts of bonds to maintain that yield, subordination would not matter.

Joebloinvestor's picture

Why doesn't Spain just become the new clearing house for Standard Charter?

monopoly's picture

Just like a bunch of children whining because they cannot get their way. And are we on track for the lowest volume day of the year? Great for WS bonus time.

Meesohaawnee's picture

serious. i dont keep track of volume intraday. My eyes only see the methodical pop pop pop pop of the algos. are we really possible lowest of the year?

loveyajimbo's picture

Rajoy, like Odumbo, is a 'roid... corrupt as hell... like they are doing Spain a favor by throwing taxpayer cash at them?  tell them to go to hell and then click on "IGNORE".

Ignorance is bliss's picture

Let's see ... Spain can do the following

A) Cede sovereignty and go through this again next year Ala Greece

B) Leave the Euro and convert all bank and citizen assets into new Pesetas

C) Take the money and then leave the Euro see B)

D) Cede sovereignty Keep the high unemployment status quo and wait for the revolution.


I think they will pick B) and Let the rest of the world pick up the pieces.


mjcOH1's picture

"I think they will pick B) and Let the rest of the world pick up the pieces."


Not while there are German tax dollars remaining to be hoovered up.   Spain will walk after Merkel does, when German politics really start to get interesting.

andrewp111's picture

What if they started circulating their own currency without leaving the Euro, but defaulted on all Euro denominated external debt? If they collect domestic taxes in Pesetas and pay Gub'mint workers in Pesetas, the Peseta will have some value. Both currencies would continue to circulate in the country. Foreign bondholders would get a choice of exchange for a new bond in Pesetas or not getting paid at all.

mendigo's picture

The "bailout" of Spain (as with Greece) amounts to "loaning" more (taxpayer) money to Spain, with conditions, so that Spain can pay money owed to (most importantly) French and German banks. So who has who by the balls with pliers. This should be interesting.

Either Germany will cave in a way that preserves thier dignity or

Spain will ice them.

I am hoping for the latter - I love the sound of bankers squealing.

Deathrips's picture

Well no you cant pay of my irresponsible credit card debts. Ill never help you with anything. Wanting to pay off bad debts ...what the hell were you thinking. LOL what a crock pot of shit.

Dareconomics's picture

If Spain tanks, then all of Europe is screwed; therefore, Spain cannot be allowed to default. What this means is that Spain holds all of the cards.
Let's say Spain refuses to request a bailout under any circumstances. It's options are either a hard default where it stops paying back its debts or a devaluation default where it reverts back to its national currency, the peseta. Either option spells disaster for the rest of Europe and particularly Germany.

Spain will play chicken with Germany throughout September until Germany relents and either writes a check with minimal strings attached or allows the ECB to begin monetizing the debt.

Ignorance is bliss's picture

you assume Germany will throw good money after bad. I doubt it. They don't have the political will. The euro structure is splitting. Its a matter of time. How much funding is required? 100 billion today...100 billion next year...100 billion the year after that. The Euro is already dead. they just haven't hit the ground yet.

shovelhead's picture

"Mom, the ice cream man...can I have some money?"

"Did you clean your room like you promised?"


"No ice cream then."

"I didn't want ice cream anyway. I hate you."

mjcOH1's picture


"I didn't want ice cream anyway. I hate you."


And where's my pony!

Peter Pan's picture

A very sick man goes to the doctor. After the examination the doctor informs him that he has cancer, hepatitis, leukemia, irritable bowel, bird flu,rheumatism, arthritis and a host of other diseases.

He asks the doctor what can be done. The doctor answers that they are going to put him in a special room and put him on a diet of very thin pan cakes with thinly sliced apricot pieces.

The patient asks: "is this diet special?"

The doctor replies: "no, but it's the only thing that will fit under the door".

And so I suggest that Germany needs to wash her hands of the debt beggars because any attempt to share in their debt woes any further will only enlarge her final losses. Germany needs to be realistic and take her losses and the PIIGS need to be realistic and retreat to their own currencies and pay for their own way and make their own changes.

viator's picture

Obama is going to get mad. He wants Rajoy to get on the Democrat campaign bus pronto. More Washington-Madrid phone calls coming up.

andrewp111's picture

Rajoy won't want to make Obama mad. Obama might send in a drone, and that's curtains for Rajoy.

wagthetails's picture

I seriously think Tyler needs to stop with the logical analysis.  you can't hold the insane to the standards of the sane. 

Spain, will take a bail out, Germany will agree on the bailout.  The won't stop until the can hits the wall...when printing is all that is left...and even then we may get a year or two of hope as the market just hopes the economies will skyrocket and allow for higher revenues to pay the massive debt.  Status quo is always easier...and they will keep kicking.  

Hell, these maniacs will probably start selling eurobonds, which will buy them a few more months, then fire up the printing presses to repay the bonds, which buys more time...then currency falls against the USD, which is actually more great news for people who like bad news and buys a few more months for the EU.  nothing is off the table for these psychos.  But seriously, i just think we are only seeing the beginning of insanity (not the least of which is the head scratching rally).  get ready for much more insanity before we finally hit the tipping point.