Saturday, June 9, 2012

Spanish "bailout lite" - right on schedule

Looks like the EU bailout of Spain is right on schedule (as discussed here) - the bond spread levels turned out to be a good predictor of an impending bailout as was the case with Portugal. And it is likely to take the form of an Ireland-style bank recapitalization (as see this post for more background).
Reuters: - A bailout for Spain's teetering banks, once requested by Madrid, could amount to as much as 100 billion euros, two senior EU sources told Reuters on Saturday.

Spain has not yet made a formal request for European aid but it could come during a conference call of euro zone finance ministers, the sources, who were both on an earlier call to discuss the technicalities of a rescue, said.

"A decision on Spain will only be taken ... by the ministers (in a second call). Madrid has not officially asked for help yet," one of the officials said. "The statement will mention 100 billion euros as an upper limit."

The Eurogroup of finance ministers is scheduled to begin its call at 4 p.m. Brussels time (1400 GMT). Earlier, its chairman, Jean-Claude Juncker, called for a "quick solution".

Several EU sources told Reuters on Friday that Madrid was expected to ask the currency bloc for help with recapitalizing its banks this weekend, becoming the fourth country to seek assistance since Europe's debt crisis began.
Apparently the IMF will supervise the "rescue plan". But unlike the situation with Portugal, this plan is expected to focus on the banking system instead of setting up new government austerity requirements - for now.
Reuters: - Conditions in the plan would be related to the banks and would probably not add to the austerity measures and structural economic reforms which Rajoy's government has already put in place, EU and German sources said.

A "bailout lite" would help salve Spanish pride. Spain is the world's 12th largest economy and No. 4 in the euro zone. EU and German officials have cited national pride as a barrier to requesting a full assistance programme.
Spanish pride? To quote Stuart Stevens, "pride is a powerful narcotic, but it doesn't do much for the auto-immune system".
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