Dominoes Tumbling: Catalonia Informally Requests Bailout As Spain Considering Credit Line Request

Things in Spain are now in freefall, and as a Spanish economist admits to El Economista "we are alone" which is not surprising: the country has cried not wolf then wolf one too many times, and following yesterday's warning by Moody's that Germany is now officially on the hook should it continue bailing out the insolvent periphery, it is no wonder that Germany will leave Spain to the same wolves it may or may not have been observing for months. Sadly, much more pain is in store for the rhyming country, but first of all for its north-eastern region of Catalonia which is responsible for a fifth of the country's economy output, and which has €13 billion in debt redemptions until the end of 2012. From El Nacional: "The Government of Artur Mas call on the help of regional liquidity fund that created the central government with 18,000 million euros, as confirmed by the spokesman Francesc Homs. After Valencia and Murcia, who have already made ??their intentions, Catalonia would be the third autonomy to resort to the rescue of the state. For its part, Andalusia may try to avoid government aid and negotiate a private loan of 800 million euros. Homs has emphasized that the decision to seek the liquidity mechanism has not yet been taken formally and according to him it is not in any case not a rescue or intervention, and that the Government of Artur Mas is studying the fine print of the conditions the fund." At least FC Barcelona has some good collateral to post to the the various German entities that will ultimately be funding the rescue. The same can not be said for Spain, however, which the same publication says, is on the verge of begging, and may demand a credit line so it can finance its funding neeeds for the remainder of the year.

From El Economista:

At stake is to avoid an imminent financial collapse. Because this danger is real. Analysts are unanimous: If perseveres pressure on Spanish bonds and Treasury loses its access to market-that is, you could not stop, 'Spain can not cope with the massive debt maturity that awaits it in October, close to the 28,000 million. These outflows be even greater if, in addition, the Treasury has to funnel money to the regions requesting the help of special liquidity fund created by the central executive.


Therefore, sources close to the government have admitted they are considering other alternatives. Like, for example, the negotiation of an overall rescue tender. That is, that Europe give Spain a temporary line of credit with which to address the maturity of its debt, and even financial assistance from the Autonomous Communities in 2012.


This option is based on a premise well known in the eurozone, of buying time. That money would serve to dampen fears today, waiting for the agreements reached at the June summit, as the implementation of a single banking supervisor, are in place and that the Stability Mechanism (Mede) is already in operation and available financial resources and instruments to find solutions.

Sadly, what one can deduce from all of this, is that Europe is now totally lost and that solutions are being made up on the fly without any regard for credibility or viability. The problem with a credit line, of course, is that it demands even more stringent collateral than what the ECB would accept, and as is now well-known to everyone, Europe, and especially Spain has no collateral: sorry underwater seaside villas and Spiderman Towels: you just don't cut it for a 60% LTV calculation.

But we do wish Spain all the best: we are confident that Germany will not let it flounder immediately. Instead the bloodletting will be slow and methodical, just as we have claimed since the beginning - after all it is only Merkel who benefits from a gradual drop in the EUR, coupled with a periphery that is so insolvent it will accept a German Debtor in Possession loan at any price and under any condition. Even if it means a peaceful sovereign control handover.

Which of course is Germany's goal as it itself has publicly stated all along.