The Financial Times and New York Times
tonight both have good overviews on the state of play in the effort to
contain a slow-motion Spanish bank run. On the one hand, the Spanish
government is in a position to tell the Eurocrats that it will consider
only a bank bailout and not be required to take on further austerity
measures. Given that retail sales have fallen nearly 10% year to year,
it’s hard to see how anyone could expect more austerity to be a good
idea.
Although markets reacted as if a deal was imminent, the FT makes it sound as if quite a few details need to be ironed out. And no wonder: the ECB, the one institution that could act unilaterally, has indicated it will only play a limited role and is leery of making long-term loans to Spanish banks or buying their debt. In addition, Spain appears to be taking an unwise posture, of asking for as little money for its banks as it thinks it will need. Rumors from Spanish officials come in at €40 billion, while European officials are looking at numbers more than twice that large. The big rule of fundraising is always raise a good bit more than you think you need in the first round; it will be vastly more expensive if you need to come to the well later.
Given that the shape of a Spanish bank rescue is very much in play, posts by European experts may well influence the outcome. While some of these recommendations might sound like the banking versions of apple pie and motherhood, it’s important to recognize that few of these basic principles have been adopted in recent bailout programs.
By Daniel Gros, Director of the Centre for European Policy Studies, Brussels, and Dirk Schoenmaker, Dean of the Duisenberg School of Finance and Professor of Finance, Banking and Insurance at the VU University, Amsterdam. Cross posted from VoxEU
In Greece, the problem is an insolvent government bringing down the banks. In Spain, the problem is now insolvent banks bringing down the government. This column argues that despite their differences, the potential costs to the rest of Europe mean that both problems require a European solution.
Read more: http://www.nakedcapitalism.com/author/yves-smith
Although markets reacted as if a deal was imminent, the FT makes it sound as if quite a few details need to be ironed out. And no wonder: the ECB, the one institution that could act unilaterally, has indicated it will only play a limited role and is leery of making long-term loans to Spanish banks or buying their debt. In addition, Spain appears to be taking an unwise posture, of asking for as little money for its banks as it thinks it will need. Rumors from Spanish officials come in at €40 billion, while European officials are looking at numbers more than twice that large. The big rule of fundraising is always raise a good bit more than you think you need in the first round; it will be vastly more expensive if you need to come to the well later.
Given that the shape of a Spanish bank rescue is very much in play, posts by European experts may well influence the outcome. While some of these recommendations might sound like the banking versions of apple pie and motherhood, it’s important to recognize that few of these basic principles have been adopted in recent bailout programs.
By Daniel Gros, Director of the Centre for European Policy Studies, Brussels, and Dirk Schoenmaker, Dean of the Duisenberg School of Finance and Professor of Finance, Banking and Insurance at the VU University, Amsterdam. Cross posted from VoxEU
In Greece, the problem is an insolvent government bringing down the banks. In Spain, the problem is now insolvent banks bringing down the government. This column argues that despite their differences, the potential costs to the rest of Europe mean that both problems require a European solution.
Read more: http://www.nakedcapitalism.com/author/yves-smith
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