Rajoy tries to dodge ECB’s liquidity

English version thanks to Marion Sarah Tuggey
se vuoi leggere l’articolo originale in italiano clicca qui

Memories – right before the last torrid summer, we could read things like

“A credit line up to €100bn has been allocated for Spanish banks”

“The Spanish government estimated its bailout need in €65bn”

That “urgent” need for aid to be given to Spanish banks had been frozen by the need of approving the ESM (European Stability Mechanism) which was under revision by the Karlsruhe Constitutional Court. Then, the Court ruled the constitutionality of the ESM according to German laws, but…Spain is still waiting. Aid no longer needed? No way. Spain is waiting to know which would be the conditions of its Memorandum. Investors are waiting to know the content of the Spanish MoU: uncertainty is not appreciated by the markets. Loose conditionality would imply a short life for Draghi master plan, leaving room to moral hazard – too strict conditionality would lead Spain into a dangerous (and contagious) spiral driven by austerity&recession which would be very hard to stop. Hence, while investors all around the world urge  Spain to ask for a formal bailout request, the Prime Minister Rajoy temporizes, waiting at least for the results of the general elections to be held in October – unless yields rocket, obviously.

Markets are offering their answer: 10-year Bonos were traded today with over 6% yield.

In the meantime, somebody is trying to figure out a possible request for bailout by the Italian government – after the Spanish one. Romano Prodi, on September 19th

“If Italy asks for a bailout, then conditions won’t be ruled by Germany, but by a supranational subject composed of a group which must include Italy, and were Italy could be allowed to say its piece.”

Thus, it’s not going to be a sovereignty transfer – the underlying idea is to share sovereignty into a supranational common structure.

It’ll obviously take time for this idea to be politically defined – markets could easily show signs of agitation again. Actually, the focus is both on the conditionality degree and on the contents of the MoU: what could you “suggest” to a country where unemployment is attested at 25%? Where the real estate bubble was created to boost the tourism and is now shelving Spanish banks? A violent liberalization of the labor market could make Spain the “European China”: quite risky I’d say, considering the fighting spirit demonstrated not only by indignados but also by the whole Spanish population.

The risk is the worsening of nationalistic instances, refusing the very idea of Europe – with enormous economic consequences all around the Euro Zone. And the new round of Quantitative Easing decided by the Fed has shown that there’s full trust in Draghi’s plan – no trust would have led the Fed to preserve this tool for the  bad times to come after the failure of the ECB plan. But they decided for the QE3: Draghi and Bernanke are then trying to alleviate the crisis in the markets, narrowing the spreads – but it will take commitment and sensitivity in managing the Spanish case, to win against the writer’s block in writing a balanced memorandum to be signed by Rajoy.

This article was posted on Huffington Post Italy, you can also go there to the italian version

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About bimboalieno

Operatore finanziario professionale dal 1998; ha collaborato con diverse banche italiane ed estere. Si può scoprire dell'altro cliccando qui. Oggi é responsabile di un centro di Private Banking. Professional financial trader since 1998; he has worked with several Italian and foreign banks. You can learn more here. Bimboalieno is currently in charge of a Private Banking centre.