This morning early news is abuzz that Spanish banks have been extended a 125 billion Euro liquidity line from the European taxpayers with no conditions whatsoever. Shades of the US TARP come to mind when Congress passed the first of many cash pumps to banks with the 700B Troubled Asset Relief Program free of any conditions, costs or consequences for the institutions and executives that had created the debacle. All culprits to date have walked off Scot-free, made whole by unsuspecting taxpayers.
The Spanish PM is refusing to acknowledge this latest infusion as a bail out. Whatever the politicians wish to call it, this is just the next installment of GMAB more ‘good money after bad” in a system that so far is still refusing to acknowledge that there is no way to pay back the money which has already been “lent”. Adding more debt zeros is the opposite of the solution needed. The bond market knows this as we see bond yields continuing to rise in Club Med countries this morning and falling in “safe haven” zones like US Treasuries. Now look for Greece, Ireland, Portugal, Italy et al. to expect more money and less conditions going forward.
Despite an agreement to bailout Spain’s banks, Europe still faces tough times ahead, including an election in Greece this weekend. Martin Wolf, Financial Times chief editorial commentator, discusses the future of the euro zone. Here is a direct link.