Spain got a “bailout” or so the media claimed. Because I cannot find any entity in Europe with the funds to actually bailout Spain (the EUFN is tapped out, the ESM has major political issues, and Germany is risking a credit downgrade and insolvency based on its backdoor EU props).
As one would expect in this situation, things are rapidly going into hyper-drive in Spain. The weekend before last the country implemented capital controls including
- A minimum fine of €10,000 for taxpayers who do not report their foreign accounts.
- Secondary fines of €5,000 for each additional account
- No cash transactions greater than €2,500
- Cash transaction restrictions apply to individuals and businesses
Does this sound like the actions of an economy with a sound banking system?
On a related note, Italy is once again back on the brink: in the last 2 weeks Italy’s Prime Minister Mario Monti has said that the country is “flirting with economic disaster… [and] in a crisis.” He, like Spain’s PM Rajoy, has pushed for the ESM to buy sovereign bonds. He’s also asked the ECB to implement a mechanism through which it would buy Italian sovereign bonds whenever the spread between them and German bunds grows too large (a type of bailout).
Indeed, things are so desperate that he invited German Chancellor Angela Merkel, French President Francois Hollande, and Spanish Prime Minister Mariano Rajoy to an emergency meeting in Rome over the weekend. His goal was to convince EU leaders to allow Italy to receive funding directly from the EFSF and ESM.
The ECB and Germany have already rebuked this idea:
ECB Weidmann: Strongly Against Monti's Proposal For Unconditional Funding
European Central Bank Governing Council member Jens Weidmann strongly opposed the proposal of Italian Prime Minister Mario Monti through which Italy could receive billions of euros from the European rescue umbrellas (EFSF and ESM) without meeting the assigned conditions of the aid, Sueddeutsche Zeitung reported.
For Italy, the advantage of Mr. Monti's proposal is simply to avoid meeting the strict saving and reform requirements that are conditional to receive the aid. That in turn would create a unique funding path for Italy unlike what other European countries like Greece and Portugal had to accept to get bailed out.
Mr. Weidmann on the other hand considered that as a "detour" that would result in a state funding which is prohibited by the EU treaties and would undermine the regulatory framework of the monetary union. Besides, Italy already tried a similar method in the 1970s and failed, according to the report.
Eurozone rift deepens over debt crisis
Leaders of the eurozone’s four largest economies pledged on Friday to back a €130bn growth package and defend the common currency but remained divided over the credit crisis as Germany continued to resist proposals to issue common debt and use bailout funds to stabilise financial markets.
The meeting in Rome was intended to demonstrate a coming together ahead of next week’s EU summit, but ended in disagreement over the need for short-term intervention in the markets and how to achieve greater political and financial union.
At a joint press conference Angela Merkel, German chancellor, declined to endorse affirmations by all three of her co-heads of government – Italy’s Mario Monti, François Hollande of France and Spain’s Mariano Rajoy – of the need to use the eurozone’s bailout funds to “stabilise financial markets”…
Instead, Ms Merkel said Europe needed to respect existing rules and had to work towards common structures to regulate the euro rather than have policies emanating from “17 parliaments each with national sovereignty”.
“If I am giving money to Spanish banks … I am the German chancellor but I cannot say what these banks can do,” she said.
http://www.ft.com/intl/cms/s/0/579e2846-bc8d-11e1-a470-00144feabdc0.html#axzz1ynyf6RJD [12]
Merkel and Weidermann’s points here are crucial. There is no way that either can OK giving German funds (ultimately Germany is the real backstop for the EFSF and ESM) without conditions. Why should Germany risk its AAA status to prop up countries that have proven to be unwilling to implement any meaningful reforms and whom actually lie openly to Germany’s face time and again?
Remember, Italy is meant to contribute 18% of the ESM’s funding… so if Italy needs a bailout…
With that in mind, if you’re not already taking steps to prepare for the coming collapse, you need to do so now. I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.
This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com [13]
Good Investing!
Graham Summers
PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.