Italy must step up efforts to curb its colossal debt and revive growth to reverse negative investor sentiment that threatens to push it to the brink, despite a reform drive and a banking system sounder than Spain's.
By Chris Ciovacco: The bank bailout in Spain will add debt to the government's books, which makes already unattractive Spanish debt less attractive. The loans for the bank bailout have seniority over Spanish bondholders, also making Spanish bonds less attractive to new buyers.
Anyone who wants to get an inside look at both the European banking system and the politicians in charge of fixing it need to only look at Spain’s Bankia. Bankia was formed in December 2010 by merging seven totally bankrupt Spanish cajas (regional banks that were unregulated). The bank was heralded as a success story and an indication that European Governments could manage the risks in their banking systems.
At this point it is clear that Europe is totally finished. The house is burning. It’s just a matter of time before it collapses. Indeed, we get a clear signal of this from Spanish Prime Minister Mariano Rajoy, who just announced the following: “It is not enough, there are no green shoots, there is no spring.” To understand the significance of this statement, you need to know a bit more about Rajoy and European politics in general.
In the too stupid to make up category, Rajoy defends ‘victory’ for EU credibility
Mariano Rajoy, the embattled Spanish prime minister, has defended the eurozone’s €100bn bailout for Spanish banks as a victory for European credibility.
By Sammy Pollack:Late Saturday, eurozone leaders announced a plan to lend Spain up to $125 billion in an effort to stabilize the Spanish banking system. So far, the global markets have responded very well to the news. As I write this, Japan's Nikkei is higher by more than 2%, the euro (FXE) is higher by nearly 1%, and U.S. equity futures are sharply higher.
After months of denials, a short Eurogroup Statement shows Spain will submit a formal request to Brussels for a bailout. Here is the statement in full.
The Eurogroup supports the efforts of the Spanish authorities to resolutely
address the restructuring of its financial sector and it welcomes their intention
to seek financial assistance from euro area Member States to this effect.
Inquiring minds are interested in the recapitalization plans for the Bankia. Please consider this chain of posts.
ABC News reports Spain's Bankia set for massive bailout.
Spain's fourth-biggest bank Bankia says it is certain of securing the 19 billion euros ($24 billion) in state aid it is seeking in the largest bank bailout in the country's history.
After insisting no bailouts would be needed, Spain to spend billions on bank rescue
Spain is planning a state bail-out of Bankia, the country’s third biggest bank by assets, in a move likely to involve the injection of billions of euros of public money into the troubled lender.
The ECB stepped into the fray once again today but the the results of the Spanish debt auction today speak for themselves. The rate on 10-year bonds is close to touching the 7% mark.
The BBC reports on the "Dreadful Result"
The Spanish government sold 3.56bn euros (£3.04bn; $4.79bn) worth of bonds out of a maximum target of 4bn euros.
The auction attracted bids worth 1.5 times the securities offered. The so-called bid-to-cover ratio was down from 1.8 in October.