Euro-zone Slow Motion Bank Run, Spain Bailout
By: Mike Whitney
Jun 13, 2012
“The burden of recapitalizing insolvent banks or loss-making acquisitions of solvent banks will fall on Spanish citizens.”
– Karl Whelan, economist at University College, Dublin.
Before EU finance ministers approve the 100 billion euro bailout for Spain, they might want to ask themselves one question: Will it really help?
Sure, it’ll keep the markets bubbly until mid-week when fears of the Greek elections set in, (June 17) but that’s about it. It won’t fix the eurozone’s underlying problems, in fact, it doesn’t even address them. The narrow purpose of the bailout is to keep insolvent banks propped up to avoid another Lehman Brothers-type catastrophe. That’s it. In other words, the 100 billion will not boost competitiveness, spur growth, reduce unemployment, or increase fiscal and political integration. It doesn’t do any of these things, in fact, Spain’s debt-to-GDP ratio will widen even more due to the new burden its leaders have taken on. That means, Spain’s working people will have to endure even harsher conditions for a longer period of time to repay the obligations assumed by Madrid. How does that help?
The Eurogroup has agreed to lend Spain 100 billion, but they have no way of knowing how much more the country will need in the future. Just take a look at this and you’ll see what I mean:
“Spain’s banks have over €300 billion in exposure to the real-estate sector, mostly through loans to developers. Around €180 billion of this exposure is considered “problematic” by Spain’s central bank.