The European financial ministers' meeting started at 4:00 pm CET. What are they discussing? According to the WSJ, nothing short of "a commitment to provide as much as €100 billion ($125 billion) in support for Spain's ailing banking sector." At least we now know that that Spanish bank trot so widely avoided by the mainstream media was just a little more kinetically-charged than previously expected, because for Spain to actually demand the money, even if implicitly, it means it has a capital shortfall, which can only arise from an outflow of liquidity, as mere real estate impairments do not have any impact on liquidity. So far so good. There is only one problem: Spain has yet to formally request the money! According to newspaper ABC [10], "Spain wants to convince European partners that IMF shouldn’t participate in aid for country’s banks because of potential stigma. Aim of talks taking place today is to agree legal framework and conditions for a potential rescue, newspaper says." Potential rescue you see: not an actual one. Just because, as we explained patiently to the 5 year old algos out there, Spain will have none of this "conditionality" that would be imposed on it by Germany, and the IMF, should it actually be formally a bail out target. Which of course would also have the unpleasant side effect of pushing its spreads tighter for a few hours, then blowing them out parabolically once carbon-based investors out there realize what has just happened. As for the ultimate question: just where will €1 of money come from in this broke continent, let alone €100 billion... why, better not to bother with details.
Because it sure isn't coming from Germany, aka the only country in Europe who can afford it. Recall [11]:
The German government on Wednesday reaffirmed its opposition to allowing European Stability Mechanism, Europe’s permanent bailout fund, to directly lend to troubled banks in the Eurozone.
Government spokesman Steffen Seibert said at a regular press conference here that the German rejection of the idea of any direct recapitalisation of banks by the ESM “is well known.”
The treaty creating the ESM explicitly states that the fund can only lend to governments in return for promises of reforms. The German government has stressed on numerous occasions that it insists that this passage of the treaty is respected. The treaty has yet to be ratified by most governments including Germany.
And why should they: as we showed yesterday [12], in April alone, German indirect costs to keep the Eurozone afloat increased by over €50 billion, or about €2 billion per day.
[13]
Which of course leaves just one source of funding...
To summarize: Europe is desperate to force Spain to accept a bail out, which the US will pay for.
And so look forward to headlines in 3-4 hours which promise much, but say nothing. Something along the lines of: "European FinMins are committed to providing Spain with financial assistance should it request it."
In other words nothing new.
More from the WSJ [14]:
Spain, which is reeling from a real-estate meltdown, has not requested aid for its financial companies yet, the official said, adding that no disbursements are likely to come before the end of the month, when two independent consulting firms have finished their assessment of the country's banking sector.
However, the euro zone agrees that "quick and radical action" targeted at Spain's banking sector is necessary, the official said.
He said the draft statement mentions €100 billion as the "top figure" of support that Spain could get, but that the exact size, form and time frame of a bailout for the banks wasn't yet decided.
"That figure is mostly for the markets and doesn't mean that the actual disbursements have to be that much," he said.
The draft statement focuses on conditions linked to Spain's banking sector, but also requires Spain to resolve macroeconomic imbalances that the European Union has previously revealed, the official said.
Finally, as we showed yesterday, all the newsflow can be ignored courtesy of one simple inforgraphic: one which shows precisely what the final outcome in Spain will be:
[15]
One word: exponential.