The instant failure of Saturday's attempted "step-by-step" bailout of Spain's banks has triggered a Europe-wide debt panic in which only one policy has a chance of working: Helga Zepp-LaRouche's Mediterranean development plan beginning with immediate national exits from the fatal euro and imposition of the Glass-Steagall principle on the banking systems.
The 100-billion-euro proposed bailout was risible against the conservative estimate of 450-500 billion euros of bad debt on Spanish banks' books; but it was a big enough new debt, piled on mountains of unpayable debt, to send Spain's sovereign and bank debt reeling. Spain's 10-year bond yield did not just jump, as on Monday; it skyrocketed, from 6.48% to 6.80%. (The flip side: Swiss government bond rates are now negative for everything up to and including 5-year bonds.) The Wall Street Journal reported Tuesday afternoon, "The euro debt crisis deepened, as a sharp rise in Spanish government bond yields to their highest levels since the inception of the euro fanned speculation that the country might need a bailout of its own, just days after Spain sought a support package for its beleaguered banking system." The quick deterioration of Spanish government debt, in turn, hit the Spanish banks which are loaded with it. Fitch Ratings downgraded Spain's biggest banks, Santander ("the world's biggest bank") and BBVA, two notches to BBB, not far above junk.
Spain is in the deadly "Greek" debt spiral: despite the Rajoy government's 45 billion in cuts and tax increases — equivalent to 4% of GDP — the EC says Spain's debt/GDP ratio will rise to 6.4% in 2012 and 6.3% in 2013, due to collapsing revenues.
Italy was also swept in, its 10-year debt rate leaped again, to 6.28%, and the Austrian Finance Minister, Maria Fekter, said Italy may need an EU bailout in the coming months — ritually denounced, of course, by Italian fiat-premier Mario Monti. But suddenly, all the "experts" were talking about the panic of bondholders whose bonds become subordinated to masses of new supranational-institution (bailout) debt.
This bailout was also the first to not only destroy its intended target, Spain, and a civilian bystander, Italy, but also the bailout funds making it. Spain's EFSF commitment is obviously gone; that raises Italy's quota from 18% to 22% and piles 25 billion euros on Italy's required new debt issuance this year; pushing Italy toward bailout, which will eliminate Italy's EFSF commitment; and so on.
Any attempt at a massive bailout by the EU of Spanish and Italian sovereign and bank debt is patently impossible; as Gordon Brown wrote in the NYT less than three weeks ago, with "uncontrolled bank runs across Europe," "a global bailout of Europe's banks" is what will be demanded next. Re-enacting Glass-Steagall in the United States will stop it.