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Bankruptia Spain To Seek Imminent German Bailout to Limit Greece Election Contagion

Interest-Rates / Eurozone Debt Crisis Jun 08, 2012 - 04:30 PM GMT

By: Nadeem_Walayat

Interest-Rates

Best Financial Markets Analysis ArticleReuters has let the cat out of the bag Friday concerning secret panic driven talks concerning an imminent bailout of Spain's bankrupt banks, possibly as early as Saturday afternoon. Which follows fast on the heels of the credit ratings agency Fitch downgrading of Spanish Government bonds to just above junk status less than 2 weeks away from the contagion inducing Greek elections. All of which were contributing to what amounts to a state of Financial Armageddon in progress as a chain reaction of detonations takes place across the Euro-zone.


Reuters - Spain Poised for bailout request

"Spain has so far resisted pressure to seek a bailout for its crippled banking sector. But sources say Madrid is now poised to ask for help. It's expected to apply for European funds over the weekend. That would make Spain the fourth - and largest - country to seek a bailout since the euro zone debt crisis began. Two senior EU officials say euro zone finance ministers will hold a conference call to discuss the aid package. "

Meanwhile a whole host of Spanish Government Ministers have been busy all week denying that a bailout was imminent and that Spain did not need a bailout as they attempted to fight to keep their jobs as Spain would effectively follow Greece, Ireland and Portugal in giving up control of most aspects of their economy over to Germany.

Spain's Economy Minister Luis de Guindos denies imminent plans for a bailout request for its bankrupting banks.

“I have absolutely not discussed any intervention in Spain’s banks today,” that Spain was not preparing a request for a rescue package from the EU’s bailout fund, and that a decision would not be made on the matter until International Monetary Fund (IMF) and independent audits of Spain’s banks had been completed, possibly by the end of this month."

Meanwhile President Obama from across the Atlantic was busy lecturing Europe when he does not have a clue on how to solve the United States own debt crisis. The only answer the US and UK have is to print money and buy their own government bonds which pushes up Inflation. I can well imagine in the not too distant future it will the America's turn and Europe will be lecturing the US to get its budget deficit and debt in order.

My last article of June 4th (The Pain in Spain Flashes Financial Armageddon) on the unfolding euro-zone crisis warned to expect a bailout of Spain within the next 2 weeks that would ultimately extend to a greater amount than the Euro 300 billion or so expended on bailing out Greece.

"In my opinion, Spain will demand a bailout within the next couple of weeks, probably coinciding with the Greek elections, and it WILL leave the Euro-zone."

So regardless of how much the initial bailout is for which press estimates vary from vary from between Euro 40-100 billion. My expectations are that the price that Spain (euro-zones fourth largest economy) will attempt to exact from Germany will run to over Euro 400 billion as that is how much Spain needs in terms of rolling over debt, financing the ongoing deficit, and to bailout its bankrupt banks, which is ten times larger than the 40 billion that the IMF is indicating, and the problem is that it may still not be enough to prevent financial armageddon, not when one considers that Spain is leaking Euro's at the rate of 33 billion per month!

So I don't see how the euro-zone can survive because Spain on its own could ultimately require a bailout of at least 400 billion and possibly as high as 800 billion, and after Spain we will have have the too big to bail Italy lining up.

Will Germany Bankrupt itself to save the Euro ?

It should not be forgotten that this week German banks were also downgraded, so even if Germany wanted to save the whole Euro-zone it probably would not be able to do so without bankrupting itself.

Greeks Watching Out for Soft Austerity

The imminent bailout of Spanish banks is clearly a panic driven pre-emptive move in advance of a Sypris victory on the June 17th Greek elections that is resulting in huge contagion risks for Spain and other PIIGS as Greece marches towards the exit.

Meanwhile the Greeks will be watching for soft austerity for Spain which will strengthen the hand of Sypris and ironically a soft austerity for Spain will make the Euro-zone LESS stable because it will fracture the whole bailouts for austerity strategy to date, because the Greeks will demand the same which Germany can not agree to.

Euro-zone WILL Breakup

The bottom line remains that no matter what is announced during the weekend the euro-zone IS still heading for straight for Financial Armageddon and WILL breakup because the Euro single currency ensures that the southern states will NEVER be able to escape ever increasing economic austerity because of the fact they CANNOT competitively devalue.

For more in depth analysis of Euro-zone Financial Armageddon and it's implications see the following recent articles:

Your analyst checking his remaining Euro notes to make sure the country symbol is X for Germany.

Source and Comments: http://www.marketoracle.co.uk/Article35064.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2012 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of three ebook's - The Inflation Mega-Trend; The Interest Rate Mega-Trend and The Stocks Stealth Bull Market Update 2011 that can be downloaded for Free.

Stocks Stealth Bull Market Ebook DownloadThe Interest Rate Mega-Trend Ebook DownloadThe Inflation Mega-Trend Ebook Download

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

sd
10 Jun 12, 13:03
aedf

correction Ireland 60 bn fore housing bubble: then Spain 500 bn. + correction for all the second homes of north EU that are recession vulnerable. 100 Bn is CRAP. Dutch morgage deduction revomal is cathastrophe. No more dreams for the Dutch.. then the go: braindrain/ runaway and leave with debt. now already 1/3 dutch houses +300k with rest debt.

North Europe needs PLAN B. Alternative union of the willing. No more lending without hard collataral. Lets build HANZE/ North Euro political union and every one can yoin.... good plans drive out the bad......


elene
10 Jun 12, 16:18
Spanish bailout

The Spanish bailout proposal seems to be its own beast: the usual pros and cons, but you clearly understand that. Although just before I stumbled onto a pretty neat article that seems to summarize the whole situation quite well (

In any event, I’m curious to see where this whole thing goes. Fingers crossed for the EU.


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