Spain IS Greece After All: Here Are The Main Outstanding Items Following The Spanish Bailout

June 10th, 2012

FAKE NEWS for the Zionist agenda

Zero hedge
Sunday, June 10, 2012

After two years of denials, we finally have the right answer: Spain IS Greece. Only much bigger (it is also the US, although while the US TARP was $700 billion or 5% of then GDP, the just announced Spanish tarp is 10% of Spanish GDP, so technically Spain is 2x the US). So now that the European bailout has moved from Greece, Ireland and Portugal on to the big one, Spain, here are the key outstanding questions.

1. Where will the money come from?

De Guindos, Schauble and the Eurogroup, all announced that the sole source of cash would be the ESM and/or the EFSF. The problem with this is that the ESM has yet to be ratified by Germany, whose parliament said previously it is sternly against allowing the ESM to fund a direct bank bailout, something which just happened. Thus, the successful German ESM ratification vote, whenever it comes, and which previously was taken for granted, now appears to be far more questionable.

Which leaves the EFSF. The problem with the EFSF is that there is about €200 billion in dry powder. And this includes the Spanish quota of €93 billion, which we can only assume is now officially scrapped.

Which brings us to a bigger question: now that Spain is officially to be bailed out, what happens next. And by that we mean of course the big one: Italy. Recall that as we posted in Brussels… We Have A Problem, once the contagion spreads again to Italy, and that country also needs a bailout, it is game over. From the world’s biggest hedge fund Bridgewater:

A d v e r t i s e m e n t

In other words, it is very likely that the funding for the Spanish bailout will have yet to be procured. Who will provide cash which is virtually certain to disappear forever in the Spanish real-estate market mismarking vortex?

2. Where will the money go?

According to the de Guindos press conference, the bailout cash will go to the FROB, or the Fund for Orderly Bank Restructuring: as the name implies a sinking fund to fund insolvent banks. This is merely a liquidity vehicle to net out evaporating capital due to realistic marks of assets, or ongoing deposit flight. However, a far bigger concern is how will the FROB be treated from a sovereign debt perspective?

As was noted previously, the bailout will come in the form of a loan, which while at better terms than market, will still result in a material increase in Spanish debt/GDP. In other words, while the bailout itself may have been without sovereign conditions, it will still impair the country in the eyes of sovereign creditors. And just as important is the mention that the loan will have “better terms than market” – this implies added security compared to general Spanish obligations. Hence priming.

Recall the official breakdown of the complete Spanish debt, presented here courtesy of Mark Grant 2 months ago:

The Data

Spain’s GDP $1.295 trillion

SPAIN’S NATIONAL DEBT

Admitted Sovereign Debt                   $732 billion
Admitted Regional Debt                   $183 billion
Admitted Bank Guaranteed Debt                 $103 billion
Admitted Other Sovereign Gtd. Debt           $ 72 billion
Total National Debt                             $1.090 trillion

SPAIN’S EUROPEAN DEBT

Spain’s Liabilities at the ECB                   $332 billion
Spain’s Cost for the EU budget                       $ 20 billion
Spain’s Liabilities for the Stabilization Funds   $125 billion
Spain’s Liabilities for the Macro Fin. Ass. Fund $ 99 billion
Spain’s Guarantee of the EIB debt                  $ 67 billion
Spain’s Total European Debt                   $643 billion

———————————————————————-

Spain’s National and European Debt $1.733 trillion

Spain’s OFFICAL debt to GDP Ratio 68.5%

Spain’s ACTUAL Debt to GDP Ratio 133.8%

* * *

Now we have another €100 billion or so in admitted sovereign debt to add to the top of the list. In other words, total Spanish admitted debt will likely increase by up to 17% from $732 billion to $857, adding the $125 billion FROB “loan.”

3. What happens to Spanish sovereign debt?

Perhaps the most important thing to note in the above analysis is that the FROB loan is effectively a priming DIP: think Troika loans to Greece, Ireland and Portugal.

In other words, Spanish bondholders just got their first taste of subordination!

Basically, first thing Monday the trade off will be: does the temporary improvement in bank solvency offset the fact that bonds just got primed, hinting at a future that in the case of Greece has resulted in the old Greek bonds trading an equivalent price of sub 10 cents on the dollar.

How long until Spanish bondholders get the hell out of Dodge, knowing quite well that their Spanish bond holdings will suffer the same fate as GGBs?

Our advice for those who need to have exposure, as we wrote 5 months ago: sell local-law, covenant-lite Spanish bonds, and buy their UK-law, covenant-protected cousins.

Then sit back and watch the spread explode.

4. Precedent

Naturally with Spain now officially biting the bullet, the only question remaining is: when is Italy going to drop next.

And ironically, what just happened, is that the Eurozone, with the tacit agreement of Germany, essentially gave insolvent banks a green light to short themselves into a full bailout.

How long until Italian banks get the hint, and proceed to short each other, or themselves, either with shares of stock or , better yet, through CDS which unlike in the sovereign case, can be held without an offsetting cash basis position. In other words: is it time for the Italian bank suicide trade?

Because only when they are on the verge of nationalization, will Italian banks be rescued. And remember: he who defects (or in this case drops the fastest), first, reaps the biggest benefits of the resultant action.

We also wonder how will Ireland feel knowing that it has to suffer under backbreaking austerity in exchange for Troika generosity, while Spain gets away scott free.

Finally, there is the question of how today’s action will impact the Greek elections. As noted earlier today, today’s precedent will likely serve as a huge boost to thepopularity of Syriza. Oh yes, the Greek elections next Sunday. Remember those, and the whole Grexit thing?

5. Market reaction

The long-term reaction is obvious: this latest confirmation that Europe is a sinking ship has been predicted by many for years. As such, that European risk markets will continue sinking, and capital flows continue rushing to Germany, is a given. In the short run, however, courtesy of a new all time record high number of EUR shorts (at a record -214,418 net non-commercial contracts as of this past week) it is likely we may see an aggressive short covering squeeze.

This will send all risk higher as well. Of course, the really is to be faded aggressively as soon as the weak-hand shorts capitulate and cover.

For those curious just what this mysterious FROB is, which simply stated is, or rather was, a woefully underfunded FDIC equivalent, and is now the Spanish banking system loophole, here is a succinct presentation:

Finally, for those wondering if today’s action will halt the catalyst for the entire move, namely the furious bank run that Spain has been experiencing in the past month, we don’t know. It likely all depends on how many Spiderman towels are in circulation and held in inventory by Spain’s insolvent banks.

Print this page.

Comment Rules

6 Responses to “Spain IS Greece After All: Here Are The Main Outstanding Items Following The Spanish Bailout”

Spain will refuse the loan, pulling a Greece which is pulling an Iceland and that loud sound you heard is the Global cabal crapping their pants. The Euro fails massively. They lose money BUT all this still sets them up to introducee a global economy once the fires die down after the major US Dollar fail and subsequent revolution.
And all that money comes from the taxpayers,,,, both in Europe and the US.

Teach your children to live off the land,,,, it may be the only possiblitiy.
I’D LIKE A MC BAIL OUT TOO !

Super Duper Man 1776 Reply:
June 10th, 2012 at 9:10 am

ALTHOUGH EVERYTHING I HAVE IS PAID IN FULL AND I’M SITTING HERE WITH 10 GRAND CASH…
Where does Germany really stand on all of this?

Often what German politicians put out is not reality (like everywhere else). Typically willing to say what the people want to hear but behind the scenes doing something different.
Zero Hedge: The Spanish Bailout.. 1. Where will the money come from?

Between_the_lines: The money come from the same place all Euros(€) come from: J℮wish International Bankers who create them out of thin air.

Euros are issued out of thin air by the European Central Bank(ECB), which is owned by member-countries’ central banks, which in turn are all privately owned, and the owners are the same group of J℮wish International Bankers in every case.
The only way Euros can be put in circulation is for each EU member country to print interest-bearing bonds as pledge them as collateral at the J℮wish pawnshop called the ECB. In return, the J℮wish pawnbrokers give the country pawntickets but no money. “How can that be?!”, you say? Well the answer is: the Europeans use those pawntickets as currency. The pawntickets are called Euros.
Then in 3 years, when the loan on those bonds come due, the country must repay the capital and INETEREST in Euros. So the country prints up more interest-bearing bonds for a larger amount, and repeats the process. It is a Ponzi-scheme, of course. The debt can never be repaid, and the Ponzischeme must keep expanding or go bust. And nothing on Earth can expand forever, so all Ponzi-schemes go must go bust in the end. The Euro included.
And the “Spanish Bailout” is just one more round of that Ponzi Scheme. Just another pledge of an EU country’s real assets in return for interest-bearing paper from J℮wish International Bankers.
Spain needs to stop borrowing the debt-based interest-bearing private Euro and start issuing its own debt-free interest-free national currency(the Pesata) again. It needs to default on all bank loans denominated in Euros, and pay of all other loans in Pesatas. And enforce a 100% reserve-ratio on all Spanish Banks.
And other EU countries and nations need to do similar. And the US too. And most all nations in the world caught in the private-currency trap.