Spain Smashed on Markets Monday; Rajoy Appeals for Direct European Bailout of Banks
May 29, 2012 • 7:13AM

May 28 (LPAC) — The markets welcomed the Spanish government's Sunday cockamamie trial balloon of bailing out Bankia (by giving them government bonds to "recapitalize" it), by driving Spain's sovereign risk up to an all time high of 507 points, with yields on 10 year bonds zooming to 6.47%, and Bankia stocks plunging at one point by 30%. This is yet another confirmation of Lyndon LaRouche's statement over the weekend that the pace of the financial/economic collapse now exceeds the rate of bailout, and it is either Glass-Steagall or uncontrolled collapse.

A spokesman for the Spanish Economics Ministry effectively said about their Sunday scheme: just kidding. El Pais reports the anonymous spokesman saying that the government has not yet made any such decision, and that it will decide how to do it in "two or three months. (!) Reuters said the government had run the idea by the ECB, who had given their OK, but the government denies it. In any event, that particular scheme is now history—although the British Empire's intention of hyperinflating their way out of the crisis, is not.

Prime Minister Mariano Rajoy called an urgent press conference on Monday to say that no decision had yet been made about how to thread the needle, and to plead for a direct EFSF bailout of the banks, because they don't want to go the Greek route of being "Troika'd" with a European bailout of the government, which would in turn hand the cash over to the banks, while ripping up any shards of remaining sovereignty.

Bankia, of course, is only a small part of the utterly bankrupt European banking system. Rajoy acknowledged this by arguing that a direct bailout of the banks by either the ECB or the EFSF was required: "Lots of people are in favor of that," he said, "and I certainly am.... Europe must dissipate any doubts over the euro, affirm that the euro is an irreversible project and act in consequence."

However — one little problem: There is no money anywhere to pull off the bailout required, no matter how many cockamamie schemes the British come up with — exactly as LaRouche has warned.

For example, it's not just the new 19 billion euros for Bankia that they are talking about. The Spanish government is already trying to come up with 50-60 billion euros for other banks, while the bankrupt regions hold a combined 140 billion euros in debt which the government has pledged to support. The debt of Catalonia, the biggest and most indebted region, is traded at 8.3% yields. Royal Bank of Scotland said today: "If you pile the regional-issuance needs into central-government funding, you could end up spooking the market. If you go off and do it with some sort of underlying guarantee in a separate entity, you may not be able to get reasonable funding rates: in many ways they are stuck." True enough.

Ambrose Evans-Pritchard points to the real issue (while, however, advocating full-scale euro-dictatorship rather than Glass-Steagall):

"Spanish taxpayers are swallowing the losses of the banking elites, sparing creditors their haircuts ... The Centre for European Policy Studies in Brussels puts likely write-offs at EU270 billion. We could see Spain's public debt surge into triple digits in short order....

"The plan to slash the budget deficit from 8.9% to 5.3% 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 24.4%. Either Europe puts a stop to this very quickly by mobilizing 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. 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."

Evans-Pritchard concludes quoting the FT's Wolfgang Munchau: "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."