Contrary to popular delusions, money flows in Spain are once again deteriorating rapidly, with the country's bank borrowings from the ECB soaring by €50 billion in June according to the Bank of Spain [5], the second highest ever, to a record €337 billion. While this is bad for Spain, it is good for Italy, which saw its June ECB borrowings rise by only €9 billion, to a record €281 billion [5], although well below Spain's total - something Italy, which led Spain in ECB borrowings since mid-2011 will be delighted to hear. What however, is rather curious, is that the Spanish TARGET2 net liability soared to €371 billion (-€40 billion in autonomous factors accounting for the lower total number), forcing the ongoing implicit German bailout of the periphery to accelerate to a record €729 billion as noted previously [6]. As a result, for the first time ever, Spanish TARGET2 liabilities represented over half of total Germany TARGET2 claims. Just as we predicted several months ago, German funding of peripheral current account balances is the only "source of capital" for these countries in what is rapidly becoming the latest 'flow of funds' mercantilist scheme, one which can only sustain for so long by definition. In the meantime, now that we are in the exponential phase of the TARGET2 blow out, expect the next German update to indicate well over €2 billion per day in implicit European bailout spending.
Spain and Italy ECB borrowings:
[7]
And a European TARGET2 summary, courtesy of Diapason's Sean Corrigan:
Numbers show that the once yawning deficit on Spain's merchandise trade balance is almost closed - i.e., the internal devaluation + the credit crunch is 'working' to restore much needed balance, however slowly and with whatever other costs...
The problem is still capital withdrawal & flight.... The TARGET2 balance has now jumped to a monstrous €408 billion... for the past year it has run at €1 billion a day - or 33% of GDP (almost an order of magnitude greater than the current account gap). YTD the run rate is €1.4 bln a day (~50% of GDP) and in QII it was up to €1.7 bln p.d. (getting on for 60% of GDP)..........
Something's gotta give!
[8]
