First off, last weekend’s 100 billion euro ($126 billion) Spanish bailout has staved off the inevitable for now.
What most people don’t realize, though, is that it actually spells disaster for the euro — there simply isn’t enough liquidity in the system and never has been. 100 billion euros is chump change.
A trillion euros is more like it. Probably more, to be quite candid.
Let me lay out the math that European politicians, whose skill set apparently consists of saying “present,” rather than developing real solutions, can’t be bothered to do.
According to the latest data, the European Stability Mechanism (ESM) and the European Financial Stability Fund (EFSF) have a combined lending capacity of 700 billion euros. If Spain requests the full 100 billion euros it approved last Saturday, this leaves 386.7 billion euros in excess capacity. The EFSF has already committed 213.3 billion euros.(700b euros minus 213.3b euros minus 100b euros equals 386.7 billion euros).
The problem is that Spain and Italy have combined total needs of 620 billion euros in the next two years alone.If you’re doing this math in your head, you’ll quickly realize that’s 233 billion euros more than the total bailout mechanisms now in existence.
Call me crazy, but under the circumstances I don’t understand how European leaders can pursue the same course of sorry-assed lending in Spain that they did in Greece and expect different results. It’s simply irrational.
Don’t get me wrong, I understand why they are trying to pull the wool over everyone’s eyes. But in reality, who’s kidding who?!
The markets know the politicos can do nothing to stem the tide of money flowing out of Spain any more than they could stop money from leaving Ireland, Italy and Greece.
The only practical consideration is preventing an all-out bank run through the front door – never mind that it’s already well underway out the back door.
Frankly, I think they’ve failed on both counts. Deposits in German banks are up 4.4% year over year to 2.17 trillion euros as of April 30th, while deposits in Greece, Ireland and Spain fell 6.5% over the same time frame.
Swiss bank sight deposits have reached five-month highs of 252 billion francs as of June 1, according to the Swiss National Bank. CNBC is reporting that up to 800 million euros ($1 billion) a day is being pulled out of Greek banks alone. Data from Spanish banks related to withdrawals is being closely guarded, but I can’t imagine it’s that much different.
full article at source:
- European Financial Crisis: 5 Ways To Avoid The “Spailout” (VGK, EUO, FXE, VWO, EWG) (etfdailynews.com)
- The Absolute Moron’s Guide to the Euro Crisis – Part II (nymag.com)
- The Spailout Has ALREADY Failed … Before the Ink Has Even Dried (blacklistednews.com)