Spanish Bank Aid - How Spain Fools The EU

Spanish Bank Aid – How Spain Fools The EU

(ES) Spain in discussions with the European Commission to use left-over monies from the EFSF bank re-cap for sovereign bond purchases

Banks will probably need €60B of the €100B EFSF credit line, the remaining €40B could be used to buy bonds on the primary and secondary markets
Spain would only have to make an addendum to the MOU for the part of the bank rescue to be paid directly to the government
Would need Italy, German and French approval
May keep Rajoy from requesting a full scale bail-out of Spain

(ES) Thursday, August 16, 2012 6:08:40 AM (EU) EU Commission: Reiterates that it has not received any request from Spain to activate banking sector aid – daily press conference

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Any request from Spain could be addressed swiftly
Renewed press reports circulated earlier today that Spain was in discussions with the European Commission to use left-over monies from the EFSF bank re-cap for sovereign bond purchases

How to interpret these headlines?

The more I read about this, the more I must applaud Spanish ingenuity. Spanish Bank Aid is a clever scheme to circumvent a normal bailout request and the austerity conditions that come with it. Now with ECB requiring a formal bailout request before they can intervene in bond purchases, this new attempt by the Spanish government could potentially satisfy the bailout requirement while limit the punitive damage that the Germans were so eager to lay on Spanish government in the forms of strict austerity demands; let’s face it, how much can the Germans ask of Spain on a €40 Billion bailout?

Let’s look at it from a different angle, even if this attempt does not satisfy ECB’s requirement of “must request assistance through the EFSF or ESM”, €40 Billion is enough to support Spain for a good 8 ~ 6 months, as their budget deficit is about €55 Billion a year. This would give them room to lower their funding costs and drive yields back down and defuse the current fear driven situation… I’d say this is a win/win for Spain if they can manage to pull it off with blessings from Italy, Germany, and France… I’d buy EURUSD.

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