Euro Crisis: Spain Down, Italy Next?

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Euro Crisis: Spain Down, Italy Next?

What really happened with the Spanish bailout, and what does it mean for Europe?

European Union finance ministers agreed to loan Spain €100 billion to bail out its banks on June 9. But they haven’t agreed where the money will come from or what the conditions will be, meaning Spain is still vulnerable and may take Italy down with it.

JP Morgan has predicted that Spain will need €350 billion. The €100 billion doesn’t come close to fixing Spain’s problems.

This bailout covers Spain’s banks, but not its regions. Like several U.S. states, the regions are heavily indebted and may need bailing out by the federal government—which would in turn need cash from Europe.

The bailout itself also threatens to make Spain’s situation even worse. The money won’t be going straight from Brussels to Spain’s banks. Instead, the Spanish government will borrow the money and then loan it to the banks. This means the bailout will add to Spain’s sovereign debt—not a good idea when you’re in a sovereign debt crisis.

Italy Next?

Twenty-two percent of Spain’s bailout cash is meant to come from Italy. As the Telegraph’s Ambrose Evans-Pritchard writes, “You could hardly design a surer way to pull Italy into the fire.”

“The world is uncomfortably close to a 1931 moment,” he writes. “Italy’s public debt is the world’s third largest after the U.S. and Japan at €1.9 trillion.”

He notes that Citigroup warned: “We expect that Italy will have to request help.”

This would cause a huge problem for the eurozone. Each month, Italy needs to borrow €35 billion—more than the annual output of Cyprus’s entire economy.

Spain’s deal could also cause problems in Greece and Ireland. Although the details aren’t ironed out yet, Spanish leaders are claiming that they got a better deal than any of the other bailed-out countries. Naturally, other bailout recipients are jealous. Ireland is demanding it get the same terms, retroactively. Greece’s political parties are holding the deal up as evidence that if they refuse austerity, Europe will offer them a better deal. Given the fact that Greece’s economic survival is now in the hands of four “Holy Roman” technocrats, that is a vain hope indeed.

Bailout Already a Mess

Europe has two mechanisms in place to bail out Spain. Both have their own problems, and both are made up largely of iou notes from the EU. With governments reluctant to pay up, converting the ious into cash will be tricky.

To complicate matters further, if the temporary bailout mechanism known as the European Financial Stability Facility (efsf) is used, Finland wants collateral for its money. The same demand lengthened the negotiations for the Greek bailout.

The fund designed to replace the efsf, known as the European Stability Mechanism (esm), has bigger problems though. The German parliament has not ratified it, and opposition parties are threatening to block it.

The decision over which of the two funds to use may seem technical and academic. But for Spain it is vital—the two funds have an important difference. If the esm loans you money, one of the conditions is that if you run into trouble, the money you owe the esm must be paid back first, before you pay back anyone else. In practice, this means that if the esm lends a country money, other people are less willing to lend to it. It’s a bigger risk—if things go wrong, the esm will be paid back first and other creditors could be left with nothing.

If the esm is used to bail out Spain, the odds are that Spain will struggle to raise money from private lenders, making it even more dependent on Europe.

The Final Solution

The whole situation is already messy and fraught with problems. But one thing is clear: This weekend’s bailout has fixed nothing. The euro crisis will continue to get worse. But now Spain has fallen, it has entered a more dangerous phase. The money spent on Greece and Ireland is pocket change compared to the money Spain, Italy and even France may need.

As for the outcome, Lord Tebbit, former Conservative Party chairman and cabinet minister, summed up the goal of the euro project nicely on June 11:

Monetary union requires fiscal union which in turn requires political union. I believe that our masters in Brussels have known all along that the peoples of Europe would not willingly accept political union. Instead they created the euro knowing that it would, sooner or later, cause a crisis of the sort necessary to force through a fiscal union and in turn lead to a political union and the founding of the European Republic.

Germany is intent on leading this new superpower. We have often highlighted the fact that German elites did indeed construct the eurozone to enable the very crisis that has placed Germany in the dominant position to dictate terms on its solution. That solution will end with an imperialist Berlin/Rome axis controlling Europe, all according to the Bible prophecies that forecast it millennia ago.