Submitted by The Needle Blog
How will a Spanish Bailout Deal Effect the Greek Elections ?
Spain is holding out for a better bailout deal.
Spanish banks need an estimated €40 billion but will likely need much more than that. (see definition of ‘recipriversexcluson’) The ECB wants to lend the money to Spain so that it can then bailout it’s own banks but Spain wants the ECB to lend the money directly to the Spanish banks, in this way the ‘loan’ is not a Spanish sovereign liability but a liability of the banks themselves. The ECB, correctly, perceive that those Spanish banks don’t have an assured future even with a bailout, whereas, the country of Spain is unlikely to disappear from the map of Europe anytime soon, and they have a better chance of getting their money bank from Spain than if they bailed out the banks directly.
This issue is at the heart of the negotiations which have taken place over the last week and look set to be concuded by teleconference this afternoon. I’ve written above that it’s the ECB negotiating with Spain but in reality it’s Germany and some other Northern Eurozone countries who are driving the ECB position.
The final result will be a fudge, which is unbelievable considering that the two positions seem irreconcilable, but as both sides seems to be pursuing a negotiating position based on M.A.D (Mutually Assured Depression) and neither side can afford to back down, so a fudge it must be.
All this wrangling appears rather interesting if you happen to be a Greek trying to decide who to vote for in the upcoming Greek election.
If the Spanish cave in to the ECB position then this would strengthen the hand of the mainstream pro-bailout Greek parties, Pasok and New Democracy, whereas, any compromise or ‘better deal’ for Spain than Greece got, will strengthen the hand of anti-bailout party Syriza.
The Spanish government are, in effect, taking a similar negotiating postion to the one Syriza are proposing to take if they get a majority in the Greek election next week and if the ECB compromise the message to the Greek electorate will be loud and clear, ‘there is room for negotiation on the established Greek Bailout package’ , something which Syriza have always claimed but which Pasok and New Democracy have always dismissed.
Under those circumstances, who would you vote for ?
This next week will be another interesting one. Fast forward and imagine that a Spanish/ECB compromise has already been announced. If the Troika maintain their current position on Greece then Syriza look bound to win in a week’s time. As the Troika don’t want this they will need to offer some kind of bailout negotiation to Greece with some prospect of compromise, they may even hint that Pasok and New Democracy are in a better position to secure any compromise.
Will this work ?
I doubt it, but it is the only chance the Troika have of avoiding a Syriza rout.
I suspect history will record that the moment that the Spanish bank bailout compromise was announced, was the moment that a Syriza win in the second Greek election became certain, and they will have a mandate to negotiate in the same manner as the Spanish government have.