Doubts about Spains Banking System Clean Up
It was a terrible day for the country of Spain on both figure, the sovereign debt and equity. For about 2 percent the stock of benchmark IBEX fell, then more than 10 percent lost for the recapitalized Bankia of Spain, as well as a Spain risk premium against the German that hits a new European Union all time high at 511bp, playing with bail out levels depending on how it is played out in Greece, Ireland and Portugal are all indication.
The Prime Minister Mariano Rajoy said the Spain’s nineteen billion Euro bail out scheme for the bank of Spain Bankia, guaranteeing all markets that no regions or banks would crash, additionally on defence about financial aid’s prospect from out of the country, primarily what really scared the traders and investors was the new report in El Mundo Spain, that proposed a much expensive bailout plan is likely to be needful to save the banking systems of Spain.
As mentioned by El Mundo, the financial assistance of the government to diminished banks in Spain could see an additional 30 billion Euro to correct its banking system in addition to the 19 billion Euro that is required by Spain’s Bankia. It is still not clear on how the amount would be propagated, although the speculations on the report announced that a €20 billion is needed to raise capital levels for government sources and €10 billion may be certain to fix the balance sheets. Spain’s newspaper discussed that the main beneficiaries would be the CatalunyaCaixa, Banco de Valencia and Novagalicia
Yanis Varoufakis (a popular crisis observer of Euro and an Athens University Professor of Economics) said “Spain has become the fourth Eurozone member-state to have fallen out of the markets, securing a bailout from the rest of Europe, without admitting that this is the case; unofficially.”
The Euro Crisis observer analyzes on how the tactics between the European Union the ECB and Spain may perform: “Europe allows Spain to issue fresh public debt that it passes on to Spanish banks (instead of money) in exchange for shares. Then, the banks will post this new public debt to the ECB as collateral in exchange for the cash that will keep the Spanish banks’ ATMs going. The end result will be, of course, that Spanish debt will increase and the banks will remain in a zombified state.”