When Eur 100 bio. isn’t enough
The EU Leaders summit which starts today will mark a watershed one way or another. Everything seems to hinge on Spain’s request for a bailout. This is particularly true following the news from Greece that “no major decisions (on Greece) will be made at the summit”. This will probably mean another summit at the end of the month.
Everyone (other than Spain’s Economy Minister) seems to agree that Spain will need a bailout. A large part of Spanish bond issues have been bought in the past by Spanish Banks who are clearly no longer in a position to be the backstop and themselves have bad debts approaching 10% of total assets.
The major sticking point for today’s summit will be between Germany and Spain. Germany is adamant that bank bailouts should have a sovereign guarantee and Sr. Rojoy has staked his political future on there not being a sovereign bailout of Spain. Semantics maybe but on such things do these decisions hinge.
A report from Bloomberg this morning states that the situation in Spain is worsening and looks like continuing to do so for the whole of 2013 before marginal growth returns in 2014.
It will be politically extremely hard to swallow should Spain need to come back to the table for a further bailout (always assuming they request one soon, if not today) but given the advance data being released that is a distinct possibility.
It is difficult to imagine the Spanish economy being able to grow sufficiently to be able to function without a further injection of funds and with unemployment not looking likely to stabilize let alone start to fall in the near future the effect of lower tax revenues and higher benefit payments will be a major drain on resources.
The markets will be very edgy over the next two days and any moves will be exaggerated by a lack of liquidity and the effect of rumour driven turnarounds.
Maybe a good time for a long weekend?