Something for you to think on a Sunday
During the past hours, the Greek media has been circulating a shocking German article from www.german-foreign-policy.com that argues than in Berlin, authorities are considering coup scenarios and other ways to use armed forces to impose their will on Greece. The article is entitled “ On The Relevance of Democracy”, and it presents several nightmare scenarios on how the Germans intend to turn Greece into a protectorate since the German austerity dictate can no longer be enforced with democratic means. The article also refers to German commentators who are drawing comparisons to the situation in the later stages of Germany’s Weimar Republic: “In the Greek situation, the worst case would be a reversion to a dictatorship,” warned an influential commentator.
Critics have noted that the ESM severely confines the economic sovereignty of its member states and criticise that it provides extensive powers and immunity to the board of ESM Governors without parliamentary influence or control.But there might be more to it. The EU may be withholding information as to what their final goal is. Simply ask yourself the following question: If the market asks for a 6% yield on the 10Y and the rescue package comes at a 3%, where is the catch? Their intention is not just saving the banks (their true intention). Otherwise this operation would have been carried out avoiding the State-owned FROB and using more standard ECB financing instruments such as LTRO. Why not make an adjustment operation with Spanish banks, or open a third window of liquidity at 1% and with larger balance-sheet flexibility?
[...] Currently the worst example of this method is in Spain, where the banks are finding it politically impossible to admit their losses. [...]
What are the chances that this method of delay and pray will work for Spain? With an enormous housing bubble and 24% unemployment, not good. Most of the bad loans that have been extended after non-payment are housing market related. Half of the lenders are zombie, which means insolvent but still technically open for business. Essentially the numbers are just too high and now everybody knows it (see this Bloomberg article for the low-down on Spain).
So what should Spain be doing?
I like to point to the example of Iceland, which admitted its debts early on (although it has to be admitted they didn’t have much of a choice), defaulted on a bunch of international debt, bailed out their citizens from onerous home debt, and is recovering nicely (see this Bloomberg article for more on Iceland).
Oh, and let me add that they (Iceland) are indicting and jailing the bankers who got them into the mess, to the tune of 200 indictments. [...]
Unfortunately, it would be tough for Spain to repeat that act- it depended on the fact that Iceland has control over its economic choices, but Spain is part of the Eurozone and as such is embedded in a huge network of agreements and debts and currency with the other Eurozone nations.
In some sense, Spain is being forced into the zombie bank situation by a lack of options. Unless I’m missing something – would love to be wrong!You are not wrong mathbabe. Actually Spanish politicians put into practice the centuries old tradition of the picaresque novel and tried to do some euro printing on their own. How? By injecting newly issued sovereign debt into Bankia's balance sheet. In this way, Bankia could go to the ECB and take more credit, and kick the can down the road. Draghi is not a fool and called their bluff the next day. Big slap on the face. Now Zerohedge is all over Bankia.