12/06/2012
Yesterday, there was always going to be a positive market reaction to the Spanish "bailout", and the day would end up flat â even on a high volume of trading. The morning rally was wiped out as the market trended sharply into negative territory. And Ambrose
explained why.
Europe, he wrote, has lit the fuse on an economic and financial bomb. Only
three days earlier, he had been warning that Spanish banks may need anything up to â¬450 billion over time, making it the largest rescue in the history of the world.
And s the markets were strutting their stuff, we was telling us that the rescue package "cannot plausibly be contained to â¬100bn once it begins", given the subordination of private creditors and collapse of global confidence in the governing structure of monetary union.
The Guardian picked up the story
at the end of the day remarking that the "hurried" Spanish banking bailout had failed to calm market nerves. The country's borrowing costs were edging up into the danger zone and, as nerves frayed, the word Italy was heard.
"The size of the deal is meant to show a real commitment on the part of the eurozone to stabilise the system," said Robert Pavlik, of Banyan Partners. "However, this just moves the problem down the road and shows how nervous the EU was going into the Greek election".
But this is kicking the can down the road, as opposed to Trevor Kavanagh of
The Sun, who is aiming his kicks in a different direction.
He has decided that "David Cameron and Nick Clegg's Pushmi-pullyu Government has much in common with the European single currency". They are totally artificial constructions which contain all the ingredients of their own inevitable destruction. And as sure as night follows day, the looming collapse of one will bring about the extinction of both.
You have to have a little bit of sympathy there, I suppose. There was a time when young David had managed to banish the word "Europe" and all the Tory Boys were telling us that no one was interested. Now, Kavanagh believes it is set to bring down his government.
And that, if
Jeremy Warner is any guide, could be in less than a month. This bailout may not succeed even in buying time, although he doesn't even want it called a bailout. It may walk, talk and look like a bailout, but to the Spanish premier, Mariano Rajoy, Spain's handout is completely different to the three rescues we've already seen.
That is one of the problems. Says Ambrose: the package offers no fundamental relief. It is a â¬100bn loan package to the sovereign state of Spain, not a recapitalisation of banks. It raises Spain's public debt by up to ten percent of GDP. There is no mutualisation of EMU debts, no move towards fiscal union. Nothing has changed.
"Existing holders of Spanish debt will be pushed further down the credit ladder with each transfer of EU money to Spain. Europe will now pay the price for what it did in Greece, where EU bodies concentrated all loses on pension funds, sovereign wealth funds, life insurers, and others who had stood behind Greece until the bitter end. They suffered 75 percent haircuts as a reward for loyalty".
But, says Ambrose, Europe's democracies can stop this. The broad Latin bloc commands the majority votes to compel the ECB to act as lender of last resort and reverse monetary contraction. They should use that power, even if it causes Germany and its satellites to storm out of EMU in a huff.
That would be a solution of sorts. Monetary asphyxiation would end. The Latin euro would weaken to equilibrium levels. Capital would flow back into southern Europe once the boil had been lanced. Just do it, says Ambrose. Call the German bluff. One bound and you are free.
But says EU competition commissioner JoaquÃn Almunia in a radio interview, "Of course there will be conditions. Whoever gives money never gives it away for free". And the fearsome Wolfgang Schäuble, warns: "The Spanish state is taking the loans, Spain will be responsible for them".
Who will be responsible for Spain though, we wonder â when or if the dust settles. More to the point, when will it ever end? At the moment, Spanish miners are burning tyres to block roads (pictured above). How long will it be before politicians are wearing them when they do?
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