Day: June 10, 2012

Sunday, 10 June 2012

08:14 – Spain has become the latest of the PIIGS to seek a bailout, leaving Italy the only remaining member of that original group that has not (yet) asked for international help to prop up its failed economy. The details, including the amount, are not yet clear, but what is clear is that as a sop to Spanish pride this won’t be called a “bailout”. Instead, it’ll be called a “recapitalization of Spanish banks”. But the duck walks and quacks.

What’s also clear is that, as always, the bailout will be much too little and much too late. More money down a rathole. The figures being bandied about are on the close order of $125 billion, which by even generous estimates are at most about 25% of what Spain needs to fix the immediate problems. Addressing the real structural issues would require at least $1 trillion, and probably much more. Spanish property values have, by official government estimates, fallen by about 20% since the onset of the crisis. The reality is that they’re currently down by 30% to 60%, with much further left to fall. In other words, every $1 billion in real estate loans that Spanish banks are carrying on their books at face value is actually worth only $800 million if you believe government figures. If you look at what properties are actually selling (or, more likely, not selling) for, that $1 billion is actually worth perhaps $500 million now and is likely to bottom out at $200 million or so. And that doesn’t include Spanish sovereign debt, nor the debt of Spain’s autonomous regions. $125 billion is not just a band-aid, but a tiny band-aid.

15:05 – One really has to have a sense of humor about these things. Spain, having been assured that its $125 billion bailout will be approved, is now concentrating on trying to convince everyone that it isn’t a bailout. Uh-huh.

Meanwhile, what no one talks about is that this bailout is to come from either the EFSF or the ESM, which supposedly have $500 billion to draw on. Not. They actually have literally only 1% of that amount to draw on. The other $495 billion is in the form of promises to pay by eurozone countries, including, ironically enough, Spain itself. So Spain, which doesn’t have the proverbial pot to piss in, finds itself in the odd position of being a partial guarantor of its own $125 billion loan. Not to worry, though. There are other guarantors. Italy, for example, is on the hook for something between a fifth and fourth of that amount. Of course, Italy is also potless. But, of course, there’s also France. Except that France is nearly as potless as Italy. Ultimately, it all comes down to Germany and Finland, neither of which are willing to pay.

The reality is that the European financial crisis is and always has been a gigantic game of three-card Monte, a pure shell-game designed to deceive markets about the reality of the eurozone economy. Every eurozone country has bankrupted itself by making promises it will never be able to keep. The costs of Europe’s social welfare programs never were sustainable, and that fact is now becoming abundantly clear even to the denialists. Twenty years ago, when Margaret Thatcher said the whole idea of the euro was fatally flawed, I thought she was stating the obvious. When the euro was introduced, I knew that it was doomed to a gigantic crash. I expected it to last a decade at most, and my estimate turns out to have been pretty accurate.

So now everyone is running around in circles crying that something must be done to save the euro. Wake up, folks. The euro can’t be saved. It never could have been saved. It was a terrible idea that apparently seemed to a lot of people to be a good idea at the time. It wasn’t. And now anyone can do is watch the euro collapse. All of the attempts to “fix” the problem are doomed to fail, and will ultimately just make the final collapse more painful.

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