Bailout Half Life
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6/11/12

Spain gained $125 billion dollars in bailout funds from Eurozone Finance Ministers on Saturday.  The money will go to the government, but Spain is clear the bailout is for their banks.  Angela Merkel’s spokesman, Steffen Seibert, said “The Spanish application comes from the state, the money will go to the state, the state is liable and the state takes on the responsibility for the stipulated conditions.”

Eurozone Finance Ministers did not place austerity conditions or additional budget requirements on the Spanish government, according to Sky News.  Spain is the eurozone’s fourth largest economy.  Spanish banks have incurred large losses from their 2008 property bubble bust.

The source of funds to bail out Spanish banks has not been determined.  The European Stability Mechanism (ESM) will not be activated until July.  That leaves the European Financial Stability Facility (EFSF).  The problem with the EFSF is any bailout has to be agreed to by the contributing countries.  Germany’s parliament has to vote to approve the bailout.  Some governments want collateral or other conditions before approval.  The ESM does not require individual government approval.

Spain’s debt load was one of the lowest in the eurozone, but interest rates were increasing on their sovereign debt because of deficit spending and a deteriorating economy.  The $125 billion bailout will be owed by the government and may take a senior position to other debt.  Remember, private Greek bondholders only got thirty cents on the dollar but the ECB and EFSF were carried at face value.

Minority party politicians in Ireland questioned if Spain got a better deal from the eurozone.  Reuters reports that Deputy Finance Minister Brian Hayes disputed any advantage in Spain’s financing package.  Ireland’s European Minister Lucinda Creighton said the government would seek “parity and equivalent treatment” if interest rates and repayment periods are more beneficial for the Spanish package.

Spain’s Economy Minister Luis de Guindos said “It’s not a bailout…it’s a credit line with very favorable conditions.”  IberoSphere (Portugal) reported the way the Spanish government tried to “spin” the bailout.

Asian and European markets welcomed the Spanish bailout news.  U.S. markets opened higher this morning, but quickly faded.  Interest rates for Spanish debt initially fell below 6.0% but started climbing and closed the day at 6.44%.

Bailouts now have a Half-Life of 12 hours!

By offering Spain money without requiring structural changes in government budgets, the eurozone has reinforced SYRIZA’s claims they can renegotiate the terms of the Greek rescue.  Eurozone Finance Ministers wanted to get a rescue package in place before Greek elections this weekend, in case the results cause turmoil in markets from SYRIZA winning a majority.

In the process of making loans without conditions Eurozone Finance Ministers have boosted SYRIZA’s chances in Greek elections.

The mailbag:
I got a great chuckle about pretending the woman was Nancy Pelosi.  I would love to see it!---Long-Term Subscriber G.C.

I can’t believe you condon neo Nazis and the battery of women, citing Nancy Pelosi.—subscriber B.H.

John’s reply:  I do not condone the battery of women.  I am married with four daughters.  I do not endorse the neo Nazi party in Greece or anywhere else.  They are the fringe of the fringe.  They obviously have not studied any history or would know how stupid their ideas were along with socialism and communism.  That being said, how do we have educated people that still believe socialism is an ideal state?

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