Spain Being Railroaded into Bailout
June 9, 2012 • 10:00AM

Spain is being railroaded in taking a bailout which will put all the bank debt onto to the sovereign, but the question is: will the euro survive?

Unnamed German and European Union sources told Reuters that Spain is expected to ask Europe for help at the weekend with re-capitalizing its stricken banks. Although the Spanish government denies this, these EU and German sources said that the Eurogroup, comprised of the Eurozone finance and economic ministers, would hold a morning conference call on June 9 to discuss a Spanish request for aid, even if it doesn't ask for it! The Eurogroup ministers will issue a statement after the call. "The announcement is expected for Saturday afternoon," one of the EU officials said. A German official said an agreement had to be reached before the Greek general election on June 17.

This sounds like the same stitch-up they gave to Ireland, which was forced to take the bailout with the condition that it guarantee all the private bank debt. But the question remains, whether this will be one bailout too far?

City of London mouthpiece Ambrose Evans-Pritchard writes that a Spain rescue is too big. While the International Monetary Fund thinks Spanish banks require EU40 billion euros, Megan Greene from Roubini Global Economics says Spain's banks will need up to EU250 billion, while the Bank of Spain said yesterday that yet other Caixas, Catalunya Caixa, and Novagalicia will need a total of EU9 billion in new state funds. Then the numbers get bigger. JP Morgan says the banks need more than EU350 billion, while RBS says EU370-EU450 billion which Evans-Pritchard rights "is by far the largest in history."

Christophe Frankel, the EFSF's chief financial officer, claims the European Financial Stability Facility could handle a Spanish bailout. Others point to the fact that Spain would have to drop out of the EFSF, with its share spread among the rest. Italy's share would rise from 19% to 22%, and Italy is in no shape to face extra burdens. France's share would rise from 22% to 25%, and Germany's from 29% to 33%.