Monday, May 28, 2012

Bankia revise 2011 profit of 41 million euros to a loss of 3.3 billion euros , or perhaps 7 billion euros , or perhaps they really don't have a clue yet - but Bankia is solvent and doesn't need a bailout says Rajoy ... ......Spain runs out of money opines Ambrose Evans - Pritchard ! Spain clearly in focus on Memorial Day - Bankia recap scheme floated and other items of interest for Spain as ten year bond approaches 6.50 percent !

http://www.guardian.co.uk/business/2012/may/28/one-bust-bank-spain-pm-mariano-rajoy

( So , let's recap,  Bankia is a bust bank - if it isn't , what is it then ? By Rajoy own admission , then spain has been brought to its knees. )


One bust bank could bring Spain to its knees, warns prime minister

Government will not allow any bank or regional government to collapse 'otherwise country will fall,' says Mariano Rajoy
Spanish prime minister Mariano Rajoy
Spanish prime minister Mariano Rajoy during a rare and unexpected press conference on Monday. Photograph: AFP/Getty Images
Spain cannot afford to let a single bank or regional government collapse as that would bring the entire country to its knees, the prime minister, Mariano Rajoy, warned on Monday.
In a rare and unexpected appearance before the press, Rajoy failed to calm markets which had reacted nervously to Spain's biggest-ever bailout, the €23.5bn rescue of Bankia announced on Friday.
"We are not going to let any region or financial entity fall, because otherwise the country would fall," he said.
The cost of Bankia's bailout has spiralled over the past three weeks and a revision of its 2011 accounts over that period has seen losses at parent company BFA multiplied by 100. On Monday night the company was set to report the biggest loss in Spain's banking history – of somewhere above €3.5bn (£2.8bn). It had originally declared just €30m in losses.
Nervousness that other Spanish banks may be hiding similar-sized holes saw Spain's borrowing costs soar once more, with investors demanding 6.5% interest on future 10-year debt. That took the rate dangerously close to the unsustainable levels at which other eurozone countries such as Portugal had to request a bailout.
Bankia, meanwhile, plummeted in value, losing 13% on the Madrid stock market. It has now lost two-thirds of its value since shares were floated last July.
"We took the bull by the horns because the alternative was collapse," said Rajoy, explaining why his government was pumping money into a bank created two years ago by the merger of seven troubled savings banks.
Rajoy claimed pressure on Spain's borrowing costs had more to do with worries over Europe and Greece than Bankia. "There are major doubts over the eurozone and that makes the risk premium for some countries very high," he said. "That's why it would be a very good idea to deliver a clear message there's no going back for the euro."
But as markets were buoyed by an opinion poll showing pro-bailout parties ahead in the runup to Greece's June 17 elections, reducing the risk of it abandoning the euro, the rise in Spain's borrowing costs showed the Bankia bailout was making investors nervous.
Ten-year borrowing costs in Italy stayed a full percentage point below Spain's, while those in already bailed-out Portugal actually fell. Spanish yields, meanwhile, hit their highest level since the dramatic month of November. And while the London stock market rallied slightly, Spain's lost two points. The IBEX index is at a nine-year low.
Rajoy dismissed growing rumours that, as French president François Hollande has predicted, a swath of Spanish banks will need rescuing by Europe's bailout funds. "There will be no rescue of the Spanish banking sector," he said.
Spain's central bank estimates some €180bn of potentially loss-making toxic real estate assets left over from the 2008 housing bust are held by banks. Bankia holds some €32bn of that total.
Rajoy said the government had not yet decided how to raise the €19bn needed to complete the Bankia bailout. Officials say it will probably give the bank a tranche of government debt instead of trying to borrow money itself.
Bankia could then use that as collateral to receive cash from the European Central Bank, shifting part of the rescue burden outside Spain. Government sources say both Germany and Ireland have used a similar system in the past.
Analysts warned, however, that this would make investors even more reluctant to buy Spanish debt. "It sends a signal of a lack of confidence," said Mark Miller of Capital Economics.
A wider audit of Spain's banking system should reveal by June what capital gap other banks will need to fill.
"Events at Bankia will reinforce the view that the upcoming external review should identify a significant recapitalisation need," said analysts at Nomura, who put a sector-wide recapitalisation at more than €50bn.
A recent poll showed that 62% of Spaniards think the country will eventually need some sort of financial rescue package.





http://www.zerohedge.com/news/bankia-parent-revises-2011-profit-%E2%82%AC41-million-%E2%82%AC33-billion-loss


Bankia Parent Revises 2011 "Profit" Of €41 Million to €3.3 Billion Loss

Tyler Durden's picture
Submitted by Tyler Durden on 05/28/2012 19:10 -0400




It is rather amazing what one finds when a company which previously had allegedly posted a profit of €41 million, somehow becomes insolvent, needs a nationalization to avoid a full out liquidation, and gets bailed out by the state. One of the first things one finds is that the profit pitched to that particular class of gullible idiots, known as shareholders, was an outright lie. And yes, on that one very rare occasion when an auditor refuses to sign off on a bank's financials, in this case Deloitte, run far, and run fast. Instead what one finds is a massive loss. From Reuters: "BFA, the parent group of nationalized Spanish bank Bankia said on Monday it had restated its 2011 results to reflect a 3.3 billion euro loss, rather than a 41 million euro profit, following a bailout from the state. In a statement to the stock exchange regulator, BFA said the restated loss reflected a review of its loan portfolios and capital needs after a new audit and as part of the clean-up plan implemented by the government." Well, duh, something "new" better be reflected, or else the general public may just get the impression that banks are merely pulling numbers out of their glutes, that the entire balance sheet, income and cash flow statements are just a jumble of utter BS, and that keeping one's deposits in a system predicated on lies and fraud may not be the smartest thing. But no: that would imply one is inciting a bank run, and that is frowned upon by the very same government which does everything in its power to facilitate just the data manipulation that magically results in a profitable bank being on the verge of liquidation.

But that's not all. According to Spain'sExpansion, the total loss could be far worse, more than double the just reported, to a total of €7 billion. Google translated:
Following a meeting of more than four hours, the board of directors of the entity on Monday approved the restated financial statements. Bankia matrix provided only consolidated data for the year 2011, yielding a loss of 3.318 million euros. However, individual losses would amount to 7,000 million BFA, according to financial sources.

The consolidated balance sheet losses gave the fruit of Bankia own numbers, which on Friday announced that it obtained a negative result of 2.979 million in 2011. In previous accounts, unaudited, BFA had lost 439 million in individual accounts, while recognized in consolidated profit of 41 million.

The red numbers are mainly due to the development of fair value of the share itself has BFA Bankia (52% in December 2011).
Indicatively, the move from a profit to a €7 billion loss, in a US context, is roughly the same as if US bank holding company X were to go from being profitable to posting a nearly $100 billion loss.
Oops.
Luckily, there is always only one cockroach (ahem JPMorgan and pair trades), and we are absolutely confident the €7 billion total loss, when officially announced will be the final one. Or so they will promise.
And nobody will need a European bailout. Ever.



http://www.telegraph.co.uk/finance/comment/alistair-osborne/9296295/Whatever-Rajoy-says-more-Spanish-banks-will-need-bailing-out.html


By , Business Editor
8:43PM BST 28 May 2012
CommentsComment
How long can Mariano Rajoy keep this up? You know, the old matador routine. Swooshing his cape and declaring: “There will be no rescue of the Spanish banks.”
You’d hardly expect Spain’s PM to say anything else. But no-one believes him, judging by yesterday’s trampling in the bond markets. The extra return investors demanded for holding Spanish debt over Germany’s shot up to 5.09pc – a euro-era high.
The reasons? For starters, Madrid’s botched bail-out of Bankia, that paella of seven cajas, or savings banks. In just a fortnight, Bankia has gone from requiring €4.5bn (£3.6bn) of emergency funding to €23.5bn. Go figure, as they say.
Then, there’s all Rajoy’s mixed messages, in one breath ruling out a foreign bail-out for Spain’s banks, the next backing a eurozone rescue fund for lenders that bypasses national governments. “Lots of people are in favour of that, and I certainly am,” was his take on that.
And this is before you consider the big picture. That, on Centre of European Policy Studies figures, Spain’s banks face potential write-offs of €270bn, once they finally 'fess up to the true horrors of a property bust. That’s roughly a quarter of Spanish GDP.
In that context, the leaks over Spain’s preferred fix for Bankia were especially telling. Until now, the state-backed FROB (Fund for Orderly Bank Restructuring) had been raising money in the debt markets and transferring it to any troubled bank. But there are two problems now. First, that the FROB only has €5.4bn, including €1bn already committed. Second, as Rajoy admits: “With a risk premium at 500 [basis] points, it is very difficult to raise finances.” So, Madrid is considering injecting newly-issued bonds directly into Bankia’s parent, Banco Financiero y de Ahorros. Bankia could then use them as collateral to borrow from the ECB.
Rajoy may see it differently but that looks uncannily like a foreign rescue by the backdoor. What choice has he got, though?
Whatever he says, Rajoy knows Spain can’t afford to bail out its banks – not amid a double-dip recession and with the jobless rate near 25pc. It’s a pity it’s too late for the obvious advice: don’t Bankia, bank somewhere else. The Spanish bank bail-outs have barely begun.

and....



http://soberlook.com/2012/05/another-confirmation-of-run-on-spanish.html?utm_source=BP_recent


Another confirmation of run on Spanish banks

There have been some questions about the veracity of the ISI data shown in the post labeled "Run on banks in Spain is very real". As a confirmation of those results we provide the latest data from the ECB. The chart below shows quarter over quarter changes in total deposits by the "real economy" (excluding deposits by banks with each other) at German and Spanish banks. The data is through Q1 of this year. Given the record spreads of Spanish to German bonds was saw on Friday, does anyone believe this situation has improved since the end of the first quarter?



"non-MFI" stands for Non - Monetary and Financial Institutions -
these are deposits by corporations, households, etc.
(source: ECB)


and.....


http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100017477/spain-runs-out-of-money/


Spain runs out of money

By  Economics Last updated: May 28th, 2012

A Spanish protester burns a euro note
El Mundo reports that the country can no longer resist the bond markets as 10-year yields flirt with 6.5pc again, and the spread over Bunds – or `prima de riesgo' — hits a fresh record each day.
Premier Mariano Rajoy and his inner circle have allegedly accepted that Spain will have to call on Europe's EFSF bail-out fund to rescue the banking system, even though this means subjecting his country to foreign suzerainty.
Mr Rajoy denies the story, not surprisingly since it would be a devastating climb-down, and not all options are yet exhausted.
"There will not be any (outside) rescue for the Spanish banking system," he said.
Fine, so where is the €23.5bn for the Bankia rescue going to come from? The state's Fund for Orderly Bank Restructuring (FROB) is down to €5.3bn, and there are many other candidates for that soup kitchen.
Spain must somehow rustle up €20bn or more on the debt markets. This will push the budget deficit back into the danger zone, though Madrid will no doubt try to keep it off books – or seek backdoor funds from the ECB to cap borrowing costs. Nobody will be fooled.
Meanwhile, Bankia's shares crashed 30pc this morning. JP Morgan and Nomura expect a near total wipeout. Investors who bought the new shares at flotation last year may lose almost everything.
This all has a very Irish feel to me, without Irish speed and transparency. Spanish taxpayers are swallowing the losses of the banking elites, sparing creditors their haircuts.
Barclays Capital says Spain's housing crash is only half way through. Home prices will have to fall at least 20pc more to clear the 1m overhang of excess properties. If so, the banking costs for the Spanish state are going to be huge.
The Centre for European Policy Studies in Brussels puts likely write-offs at €270bn. We could see Spain's public debt surge into triple digits in short order.
As I wrote in my column this morning, the Spanish economy is spiralling into debt-deflation. Monetary and fiscal policy are both excruciatingly tight for a country in this condition. The plan to slash the budget deficit from 8.9pc to 5.3pc this year in the middle of an accelerating contraction borders on lunacy.
You cannot do this to a society where unemployment is already running at 24.4pc. Either Europe puts a stop to this very quickly by mobilising the ECB to take all risk of a Spanish (or Italian) sovereign default off the table – and this requires fiscal union to back it up – or it must expect Spanish patriots to take matters into their own hands and start to restore national self-control outside EMU.
Just to be clear to new readers, I am not "calling for" a German bail-out of Spain or any such thing. My view has always been that EMU is a dysfunctional and destructive misadventure – for reasons that have been well-rehearsed for 20 years on these pages.
My point is that if THEY want to save THEIR project and avoid a very nasty denouement, such drastic action is what THEY must do.
If Germany cannot accept the implications of this – and I entirely sympathise with German citizens who balk at these demands, since such an outcome alienates the tax and spending powers of the Bundestag to an EU body and means the evisceration of their democracy – then Germany must leave EMU. It is the least traumatic way to break up the currency bloc (though still traumatic, of course).
My criticism of Germany is the refusal to face up to either of these choices, clinging instead to a ruinous status quo.
The result of Europe's policy paralysis is more likely to be a disorderly break-up as Spain – and others – act desperately in their own national interest. Se salve quien pueda.
I fail to see how Spain gains anything durable from an EFSF loan package. The underlying crisis will grind on. Yes, the current account deficit has dropped from 10pc to 3.5pc of GDP, but chiefly by crushing internal demand and pushing the jobless toll to 5.6 million. The "unemployment adjusted current account equilibrium" — to coin a concept – is frankly frightening.
The FT's Wolfgang Munchau suggested otherwise last week, saying Spain's competitiveness gap has been exaggerated. I can see what he means since Spain's exports are growing even faster than German exports. But this is from a low base. It is not enough to plug the gap.
Spain is quite simply in the wrong currency. That is the root of the crisis. Loan packages merely drag out the agony.
A Spanish economist sent me an email over the weekend after the Bankia details came out saying:
"It looks like game over for the sovereign and the financial sector at the same time. Unless we get a Deus ex Machina, we'll be discussing much more seriously the benefits of a return to the peseta in no time."







http://www.zerohedge.com/news/spain-bund-spread-just-broke-450-bps


Spain-AAA Spread Just Broke 450 bps: LCH Margin Hike Alert

Tyler Durden's picture
Submitted by Tyler Durden on 05/28/2012 08:10 -0400




Why is 450 bps important? That's is the threshold (as explained before here andhere) beyond which LCH goes all medieval on one's bond holdings.
Either the ECB gets involved here, and fast, and activates the SMP emergency bid, or else the central bank is sending a very loud signal to the country which is now betting Draghi will keep quiet as he accepts Spanish bonds in repo pledged by Bankia.

A signal which is bad to quite bad for those in the cheap seats.



and....

http://ftalphaville.ft.com/blog/2012/05/28/1018331/bankia-going-gubu-but-what-about-the-rest/


Bankia going GUBU … but what about the rest?

Posted by David Keohane on May 28 09:26.
“Oh, Bankia” has become a common refrain around these parts and this morning Joseph pointed out a few of the oddities surrounding Spain’s incipient bailout and a similarity or two with Ireland’s.
(What’s Spanish for GUBU again?  H/T Conor Cruise O’Brien and Nomura’s Daragh Quinn).
And news of that bailout, which will see some €19bn pumped into BFA-Bankia group, took Bankia down near 30 per cent on Monday morning following Friday’s suspensions:
But what about the rest of the Spanish banking sector? Is Bankia, Spain’s fourth largest bank, so unique?
This is from Nomura (with our emphasis):
Based on our analysis we believe that only BBVA, Santander and Sabadell (based on the buffer provided by the asset protection scheme) would avoid needing to strengthen capital.
… we believe the government could also need to clean up and recapitalise the nationalised banks of Banco de Valencia, Novacaixagalicia and Catalunyacaixa. Including other unlisted banks there capitalisation needs could amount to between EUR 50 to EUR 60bn.
While losses in the remaining listed banks will have their differences, we believe it is more probable that significant additional provisions will be required, based on current economic conditions and the required provisions on real estate exposure. This shortfall of provisions is likely to be identified in the upcoming external review, being conducted by Oliver Wyman / Roland Berger but with supervision from the Bank of Spain, IMF and EBA (European Banking Authority). In fact, this external review will likely only be viewed as credible by investors if it identifies significant additional provisioning and capital needs.

Our analysis indicates that real estate developer provisions (imposed by the new legislation) and stressing losses on the non-real estate loan book, would imply total gross provisioning needs of c. EUR 190bn for the system. Although this would rise to EUR 220bn assuming a coverage ratio of 50% against gross real estate exposure (vs the 38% implied by the new legislation). As of 1Q 2012 the Spanish banking system has provisions of c. EUR 83bn, implying a potential shortfall of EUR 106bn to EUR 140bn. In 2011 the Spanish banking system generated pre-provision profits of c. EUR 29bn.
For the main listed banks we highlight in Figure 1 below the key loss assumptions and the capital requirements. To maintain / reach a capital ratio of 10% would indicate a capital shortfall of EUR c. 16bn for the listed banks (in addition there would be a EUR 19bn requirement at BFA-Bankia).


Figure 2 highlights the expected loss ratios offrom the 2011 stress test. However, if the recession was to deepen in 2012/2013 and/or extend into 2013 / 2014, losses could exceed these estimates. We believe therefore that capital ratios need to be strengthened significantly beyond the current minimum of 8.0% established by the Bank of Spain.

And if things get worse in Spain and Bankia, in particular, needs to raise more capital (grab another cookie) a quick look at Ireland might give an indicator as to the levels needed:


and.... 



http://hat4uk.wordpress.com/2012/05/28/euroblown-official-bankia-solid-heading-draghis-way/


MAY 28, 2012 · 6:34 AM
↓ Jump to Comments

EUROBLOWN: Official: Bankia solid….heading Draghi’s way

Forget Grexit: this is euroexit

 In an amazingly cunning stunt, the Spanish Government plans to pay for Bankia’s nationalisation with its own debt…and then get Mario Draghi’s European Central Bank (ECB) to exchange this junk for cash. And throughout ClubMed, poorer citizens are dumping the banks in favor of cash, while the 3% are dumping the euro in favor of London property.
As a chap who’s fond of bailing out sovereign states with worthless paper, Mario Draghi may well find himself trumped this week by Mariano Rajoy of Spain, who (prodded by the crafty Bankia president, Jose Ignacio Goirigolzarri)  has cooked up an entirely legal cash-for-sh*t exchange whereby Madrid injects €19bn of unrepayable Iberian debt into Bankia, who then send it up to Frankfurt in exchange for real spendable euros 
printed by Mario’s dwarves
 provided under the eurozone liquidity scheme.
“This could catch on in a big way,” giggled The Slog’s baleful Fifth Columnist in Brussels, “Imagine giving someone like Venizelos this idea….he’d empty the ECB in a week”.Joking apart, my normal contact in Madrid is already in the office this morning, and acutely aware of how this new contagion could spread very rapidly.

“I know for a fact that the Government here is considering a similar plan for some larger Cajas if this one goes through,” he confirmed, “So Draghi cannot afford to set a precedent. Rajoy is basically using the eurozone’s own rules to force the ECB into direct help for banking institutions…but without the need for Sovereign bailouts. For now at least.”

The theory is that this will be less spooky for the bond markets buying (or rather not buying) Spanish debt. It also gives the Madrid government a way of reducing its outgoings massively without needing the markets.

The problem of course is that this is a national-centric short-term ruse that can only lead to a medium term ‘run’ on the ECB’s liquidity resources. And it leaves Draghi with two equally unpalatable alternative courses of action: to renege on his own promises and say no to the exchange; or to start printing a great deal of money.

Meanwhile, in another bizarre twist wealthy ClubMed citizens are busy exchanging cash for London property, writes Kathimerini.

Data issued by UK estate agents operating in Greece show how Greek demand for properties in London rose 39% in April — before the May 6 elections — compared to the average for the previous six months. Most house-hunters showed interest in everything worth more than £1.5M.

Greeks spent about €126m on residential purchases in London in 2011. But during April this year, demand by Spaniards was up 14%, by Portuguese 153% and by Italians 46%.  And enquiries have shot up again since the proclamation of new Greek elections for June 17 – despite the euro’s plummeting value against the pound.

It’s all beginning to make me wonder if we shouldn’t see the English Channel as a sort of 21st century Berlin Wall. Certainly, in terms of people, Theresa May and very possibly won’t already sees things in that light.








http://globaleconomicanalysis.blogspot.com/2012/05/spains-plans-to-recapitalize-bankia.html


Sunday, May 27, 2012 10:17 PM


Spain's Plans to Recapitalize Bankia Will Put Germany, ECB at Risk; When Does the Ponzi Scheme Collapse?


Inquiring minds are interested in the recapitalization plans for the Bankia. Please consider this chain of posts.

ABC News reports Spain's Bankia set for massive bailout.
 Spain's fourth-biggest bank Bankia says it is certain of securing the 19 billion euros ($24 billion) in state aid it is seeking in the largest bank bailout in the country's history.

Bankia is considered key to the country's financial system, and a failure would contaminate the entire banking sector.
The plight of Bankia - which holds some 10 per cent of the nation's bank deposits - has added to the concerns over the massive debt crisis gripping Spain and the rest of the eurozone.

Bankia president Jose Ignacio Goirigolzarri has sought to reassure investors and the public about the future of the struggling bank at a press conference called the day after it announced huge losses, and asked for a government rescue.

"I am certain that the Spanish state will obtain the financing so we will receive the 19 billion euros. That's the commitment," said Mr Goirigolzarri, adding that he expected to get the funds in July.
Devil in the Details

Inquiring minds just may be asking "Just where is this money coming from?" That's a good question.

Reuters reports Spain may recapitalize Bankia with government debt.
 Spain may recapitalize Bankia with Spanish government bonds in return for shares in the bank which last week asked for rescue funding of 19 billion euros ($24 billion), a government source said on Sunday.
Bankia could use the sovereign paper as collateral to get cash from the European Central Bank, forcing the ECB to get involved with restructuring Spain's banking sector, laid low by lending to property developers in a boom that ended in 2008.

ECB policymakers, who have pumped over 1 trillion euros into Europe's financial system in recent months, are resisting pressure to do more to shore up the euro zone.

"The biggest problem here is that the ECB could object. That's a legal issue, but technically it is possible," said Jose Carlos Diez, economist at Intermoney Valores.
Ponzi Financing

Got That? A Spanish government source says the plan is float what amounts to junk bonds, pawn them off to the ECB and use the proceeds to "recapitalize" Bankia.

Of course the ECB (bankrolled by Germany) is at enormous risk were this preposterous scheme to actually happen.

This is what I want to know: When does Germany say it has had enough of these preposterous schemes? 

and no comment from Buba yet but here is a preview of what to expect....

http://www.zerohedge.com/contributed/2012-05-28/president-bundesbank-lashes-out



The President of the Bundesbank Lashes Out

testosteronepit's picture
Submitted by testosteronepit on 05/28/2012 01:02 -0400




Wolf Richter   www.testosteronepit.com
Jens Weidmann, President of the German Bundesbank and member of the ECB Council, ventured into a veritable lion’s den with an interview in Le Monde, the number one liberal daily in France whose editorial bend has been supporting President François Hollande and his “growth” policies. And there, the central banker lashed out at Hollande and what he'd promised during the campaign. And he lashed out at the ECB, and at everything that smelled of a transfer union, and in passing at Paul Krugman and others who wanted the ECB to print with utter abandon to monetize the sovereign debt of debt-sinner countries, even more so than it has already done.

Le Monde called him “guardian of monetary orthodoxy,” whatever it meant by that because a central banker who insists on maintaining price stability rather than printing trillions to prop up the markets and enrich the bankers is closer in today’s crazy times to a monetary novelty than monetary orthodoxy.

“Being in favor of growth is like being in favor of peace in the world,” Weidmann said about the raging debate of growth vs. austerity. “The real debate is which path leads to sustainable growth,” he said. And the answer was clear: “structural reforms.” Debt-fueled spending would just create an “economic straw fire.” And then he added, “In fact, I’m asking myself what these discussions are hiding.”

Then he shot down European Project Bonds that Hollande has been pushing with all his might to fund infrastructure projects as part of his “growth” policies. “This debate irritates me a bit,” Weidmann said. “Every month, ingenious ideas to counteract the crisis surge out of nowhere before they disappear a month later. Now it’s project bonds.... It’s not a lack of infrastructure that is slowing down growth in these countries.”


While he was at it, he whacked at Hollande’s most cherished panacea for the debt crisis: “The belief that Eurobonds could solve the current crisis is an illusion,” he said, reflecting the opinion of his compatriots, an astounding 79% of whom were dead set against them, grasping how insidious these bonds would be for German taxpayers. Read.... Germany Walks Away From Greece.

Eurobonds, which would spread liability for one country’s sovereign debt across all Eurozone countries, could only happen, if at all, “after a long process that would among other things have to include changing the constitution of several countries, modifying treaties, and having more of a budgetary union,” he said. “You don’t entrust someone with your credit card if you cannot control how much he spends.”

Communalizing national debts across the Eurozone would require “federalism,” he said. “But even in countries where governments clamor for Eurobonds, such as France, I see neither public debate on, nor popular support for the transfer of sovereignty that must accompany them.”


Federalism. A toxic word in Europe where each country proudly insists on its sovereignty. People are already complaining about the incessant intrusions of the EU in their daily lives. So, Le Monde asked, was there a way out of the euro crisis without “jumping into federalism?”

Well, “I’m convinced that clarity on this subject would help us,” he said. “Investors not only worry about the situation in one or the other country, but also about the functioning of the Eurozone as a whole.”

What about regaining the confidence not just of investors, Le Monde asked, but also of populations?

“You have to find the equilibrium between economic necessities and political limits,” he said. “Reforms in countries that receive aid are necessary: they may be hard, but they permit the country to pick itself up and not depend indefinitely on others." And he warned of “a transfer union” where the debts of one country would forever be paid by others. “Our role as central banks is to guarantee price stability in the Eurozone. I’m convinced that the future of the euro is fundamentally linked to the support of the population, and that this support depends on the confidence Europeans have in the stability of their money.”


He refused to say if he was bracing himself for Greece’s exit from the Eurozone, but he left little doubt: “We will see if the agreements underlying the solidarity of other countries are respected. And if necessary, the aid should be stopped.” Then he hammered home his point: “The decision is now up to the Greeks.”

Hollande would like for the ECB to support growth more vigorously, Le Monde said—conveniently forgetting that, after a series of devaluations since 1945, the French franc was "revalued" in 1960 at 100 old francs to 1 new franc. Confidence-inspiring notes were printed, and the dance started all over again: from 1960 through 1999, when the franc was replaced by the euro, it lost another 88% of its value—due to France's habit of monetizing its debt. A fate Germany has tried to avoid. And so, Le Monde asked Weidman if he could “envision an evolution of the ECB’s mandate.”

Um, no. “The mandate is deeply rooted and stems from the lessons learned during the seventies and eighties," he said. "It’s when a central bank ensures price stability that it contributes the most to durable growth.”


He lamented that the balance sheet of the ECB has more than doubled since the financial crisis and was larded with risks “to avoid a collapse of the system.” But these were “risks for taxpayers, particularly in France and Germany.” He worried about overstepping “the red line between monetary policy and budgetary policy” and said, “Governments must take on their responsibilities and not subcontract them out to monetary policy.”

Aiming squarely at Paul Krugman, he said, “In the US, certain people believe that the ECB should buy more sovereign debt like the American Federal Reserve. But we’re not a federal state, and the Fed doesn’t buy the debt of California or Florida.” And he vetoed in advance any new Long Term Refinancing Operations (LTRO) through which the ECB late last year and earlier this year had lent banks €1 trillion for three years at 1%. “Like morphine, they relieve the pain but don’t cure the disease," he said "And there are side effects, such as delaying the reform of the banking sector.”

*   *   *   * 



and Rajoy is really spouting primo bull shitte this morning.....
http://www.telegraph.co.uk/finance/debt-crisis-live/9293828/Debt-crisis-live.html



15.30 Sticking with the bond markets, the yield on German five-year government bonds has fallen to a record low of 0.421pc - the lowest since Bloomberg data started being compiled in 1990.
Meanwhile, across the eurozone - the yield on Spain's 10-year government debt was trading with a yield of 6.5pc.
The gap, or spread, between the yield on Spanish borrowing costs and those of Germany has increased to its widest since the euro was created today.
15.00 Meanwhile, the European Central Bank says it held back from using its government bond-buying programme for the 11th week in a row last week, despite growing political pressure for the ECB to do more to help indebted eurozone nations.
The ECB has spent has spent €212bn on bonds since launching the Securities Markets Programme in May 2010, but has used it only once since February, after offering a series of cheap short-term loans to European banks at the start of the year, a move which contained the last crisis of confidence, which peaked around Christmas.
14.32 Reuters has quoted a Spanish government source as saying that a bank recapitalisation with bonds (possible plan for Bankia) "has been used by Germany and Ireland in the past and is perfectly valid".
12.56 Quick look at the markets following Rajoy's speech:
FTSE 100 +0.8pc
CAC +0.9pc
DAX +0.7pc
IBEX -1.4pc
MIB +0.2pc
Spain down heavily. Only one of the main European markets in the red.Spanish 10-year bond yield now at 6.4pc. If you're wondering why high bond yields are so important, the Telegraph's Amy Wilson has written an article explaining everything you need to know.
Nicholas Spiro, at Spiro Sovereign Strategy:
QuoteThe Spanish crisis has reached a tipping point. Investors have lost confidence in Spain. The botched bail-out of Bankia was the trigger for this morning's abrupt sell-off - a sell-off that threatens to turn into a rout unless bold and decisive measures are swiftly taken by eurozone policymakers to shore up the bloc's endangered sovereigns and their banks.
Spain has become the focal point for market anxiety about the pernicious links between distressed sovereigns and their banks. Although Spain's banking woes are much less severe than Ireland's, the same negative feedback loop that felled Ireland in 2010 is undermining confidence in Spain.

What is most concerning, and what necessitates speedy action on the part of the eurozone, is that the Rajoy government is stuck in a rut. It is in a 'damned if it does and damned if it doesn't situation'.






12.43 Rajoy calls for the EU bailout fund to be able to recapitalise banks directly, and that's the end of his speech.


12.26 More from Rajoy: Spain's debt sustainability problem needs solving. He rules out external rescue of Spanish banks. Satisfied with regions' move to rein in spending. Rajoy says when Bankia is recapitalized, it will be sold and state investment recovered.
Spanish government looking at best way to inject public funds into banks. Hasn't asked ECB to inject funds into Bankia.
Catalonia not bankrupt, but there are liquidity problems.
12.19 Rajoy calls on Europe to make structural reforms and that there must be a "decisive and clear move" to dissipate doubts over the euro.
Europe must go towards more monetary and fiscal integration. Europe must act in defense of the euro.
Rajoy dismisses talk that Bankia bailout influenced risk premium.Bailout aims to bolster confidence. Adds that we will have to wait for audit to see total figure for bank rescues.
12.15 Back to Rajoy. He says country could run risk of not being able to finance itself if it does not cut deficit. He adds that it is hard to "raise finance" with a very high risk premium, the problem of debt sustainability must be solved.
12.10 Spanish PM Mariano Rajoy has started his press conference. Says Spain must continue reducing its deficit.
11.58 ECB Governing Council member Jens Weidmann: "Every month, ingenious ideas to counteract the crisis surge out of nowhere, before they disappear a month later."
His colleague Klaas Knot believes the crisis shows banking regulatory framework has to be updated due to inadequate solvency levels.
11.13 Spanish Treasury says it is in a very strong position to repay maturing debt. Bankia shares have rebounded from -27pc to -9pc.

10.52 Trader @Cigolo on Twitter:
09.59 The BBC's Business Editor Robert Peston has suggested that Spain's Bankia rescue may backfire:
QuoteBankia can take €19bn of Spanish government bonds and swap them for cash at the European Central Bank. Hey presto, as if by magic, problem solved: Bankia would have billions in new capital and cash.
Except that if Bankia has really been strengthened by this financial engineering, then there would have to be a very significant transfer of risk to the European Central Bank - and therefore, by implication, to its shareholders, or the other central banks and taxpayers of the eurozone.
However, the European Central Bank, under its statutes, is not supposed to take that kind of risk. And, on the basis of recent history, it is fair to assume that the Bundesbank and many Germans would go bonkers if they thought they were really being forced to bail out a bank that bankrupted itself by rampant speculation on land and property.
So presumably, if the deal is allowed to proceed, the ECB will ensure that all the risk actually remains with Bankia and the Spanish government - and therefore with Spanish taxpayers - by imposing a massive discount (or haircut) on the amount of cash it would exchange for the bonds.
Which means that the deal may turn out to be too clever by half.
09.36 ECB's Jose Manuel Gonzalez-Paramo has said Spain should not have a 6pc interest rate.
He adds that the government's GDP forecast is "realistic". It expects the economy to shrink 1.7pc in 2012 before expanding 0.2pc next year.
08.50 Spain's stock market - the IBEX - has turned negative after opening strongly. Now down 0.6pc.
Ten-year bond yield hits 6.5pc - highest since November.
08.37 JPMorgan says Bankia share value is 35 cents (-80pc). Nomura says value is 20 cents.
08.32 Spain, Italy and Greece are facing an olive oil crisis.
The price of the Mediterranean diet staple has plunged to a 10-year lowas domestic consumption in the top producing southern European countries has fallen because of the economic crisis. That fall has coincided with a bumper olive crop in Spain, the biggest grower, creating a glut that has forced the EU to intervene to reduce the surplus amid worries about rural incomes.
08.23 Spanish/German 10-year government bond yield spread hits euro-era high at 505bps. Spanish 10-year yield rises to 6.43pc, Italian climbs to 5.86pc.
08.21 BREAKING NEWS...
Bankia shares fall 27pc on opening.
07.56 Alberto Fabra, president of the Valencian government, has called for a jointly-issued regional bond. His move comes after the Catalonian government asked Spain for a bailout last week.
07.36 Linda Yueh at Bloomberg:
07.32 Bankia's trading suspension has been lifted. The shares were suspended on Friday, shortly before it announced it made a €3bn loss in 2011 and was seeking the government aid.
07.12 The Telegraph's Ambrose Evans-Pritchard has been looking at the crisis in Spain.
 The damage from this double-barrelled contractionary shock on a fragile Spanish economy is before our eyes, conforming with precision to textbook time-lag theories. Private sector credit has fallen for 18 consecutive months. Industrial output fell 7.5pc in March. Brussels expects the economy to shrink 1.9pc this year, with the crunch yet to come.
Unemployment has reached 24.4pc, or 32pc in Extremadura. More than 1.5m households have no earner at all. They have exhausted their benefits, surviving on savings and - for now - on €420 a month in back-stop support.
Faced with such woes, any sovereign country would call for full engine reverse with every policy lever. The Faustian Pact of EMU allows no such escape. Europe has ordered premier Mariano Rajoy to cut the budget deficit from 8.9pc to 5.3pc in a single year, four times the therapeutic pace.

06.58 Reports this morning suggest Spain may recapitalise Bankia with Spanish government bonds in return for shares in the bank which last week asked for rescue funding of €19bn.


Bankia could use the sovereign paper as collateral to get cash from theEuropean Central Bank, forcing the ECB to get involved with restructuring Spain's banking sector, laid low by lending to property developers in a boom that ended in 2008.




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