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When is a bailout, not a bailout ?

When it's financial aid of course !

Spain has eaten humble pie and became the fourth and largest country to ask Europe to rescue its failing banks.

EU leaders hope the loan of up to 100 billion euros (£81 billion) that Spain's finance minister denied was a bailout, will stabilise a financial crisis that threatens to break apart the eurozone.

Saturday's rescue offer follows growing pressure from international investors and the Obama administration and comes a week before elections in Greece, whose voters could decide whether the country leaves the euro.

The Spanish acceptance of aid for its banks is a huge embarrassment for prime minister Mariano Rajoy, who insisted just 10 days ago that the banking sector would not need a bailout. He was elected in November and walked right into a hurricane.

Europe's widening recession and financial crisis has hurt companies and investors around the world. Providing a financial lifeline to Spanish banks is likely to relieve anxiety on the Spanish economy - which is five times larger than Greece's - and on markets concerned about the country's ability to pay its way.

Spain's economy minister Luis de Guindos announced the deal after an emergency conference call with eurozone financial leaders yesterday, but insisted it was financial aid, not a bailout. He said the aid would go to the banking sector only and would not come with new austerity conditions attached for the economy in general - conditions that have been an integral part of previous bailouts to Portugal, Ireland and Greece.

The exact figure of the bailout has not yet been decided. Mr De Guindos said the country was waiting until independent audits of the country's banking sector had been carried out before asking for a specific amount. The audits are expected by June 21 at the latest. He did say, however, that Spain would request enough money for recapitalisation, plus a safety margin that would be "significant".

With markets in turmoil, Mr de Guindos said the government's efforts to shore up the financial sector "must be completed with the necessary resources to finance the needs of recapitalisation".

Finance ministers of the 17 countries that use the euro said the money would be fed directly into a fund Spain set up to recapitalise its banks, but underscored that the Spanish government was ultimately responsible for the loan. However, that plan allows Spain to avoid making the onerous commitments that Greece, Ireland and Portugal were forced into when they sought their rescues.

Instead, the eurozone statement said that it expected Spain's banking sector to implement reforms and that Spain would be held to its previous commitments to reform its labour market and manage its deficit. The statement said that meant the cost could reach 100 billion euros.
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Comments

  • Spain is effectively fecked for a couple of generations. Unemployment there is 25% and under 24's is worse. At least it's sunny.
  • Wait, isn't Santander a Spanish bank, and haven't they been buying up lots of stricken banks in the UK in the past couple of years? How does that work?
  • The crisis according to blackadder:

    Baldrick: "What I want to know, Sir is, before there was a Euro there were lots of different types of money that different people used. And now there's only one type of money that the foreign people use. And what I want to know is, how did we get from one state of affairs to the other state of affairs"

    Blackadder: "Baldrick. Do you mean, how did the Euro start?"

    Baldrick: "Yes Sir"

    Blackadder: "Well, you see Baldrick, back in the 1980s there were many different countries all running their own finances and using different types of money. On one side you had the major economies of France, Belgium,Holland and Germany, and on the other, the weaker nations of Spain, Greece, Ireland, Italy and Portugal. They got together and decided that it would be much easier for everyone if they could all use the same money, have one Central Bank, and belong to one large club where everyone would be happy. This meant that there could never be a situation whereby financial meltdown would lead to social unrest, wars and crises".

    Baldrick: "But this is sort of a crisis, isn't it Sir?".

    Blackadder: "That's right Baldrick. You see, there was only one slight flaw with the plan".

    Baldrick: "What was that then, Sir?"

    Blackadder: "It was bollocks".

  • This is a massive departure from the Greek crisis. Greece is a small country, and whilst their collapse would have severe implications, I think European economies could have survived. A Spanish collapse is a different matter completely and would likely bring down not just the Eurozone, but also the peripheral economies (I.e us). Germany's call now really. Scrap the Euro and give these weaker countries the opportunity to rebuild their economies without the ECB tying both hands behind their backs, or go the whole hog and allow the ECB to become a lender of last resort (which it basically is anyway) and allow the issue of Euro bonds. One thing for sure is that the current provisions are doing nothing but creating uncertainty, probably the worst atmosphere within which to try and encourage growth.
  • Sam - Santander UK isn't totally unaffected as it has been subject to a couple of downgrades recently from the ratings' agencies in their reviews of Spanish banks. That said, their banking licence for the UK means that they are kept separate from the parent bank and they can not pull the assets to Spain. Savers also fall under the same Financial Services Compensation Scheme as all UK banks and have the first £85k protected.

    Doubt they will be buying anything else up for some time!
  • I know I'm in a minority of one with my opposition to the EU.

    But rest easy. The UK will find more billions to pay via the IMF and British citizens will be royally shafted as usual.

    So don't worry!
  • I'd say you was in the majority Len. I'm opposed to the EU for sure.
  • I'd say you was in the majority Len. I'm opposed to the EU for sure.
    Agree, thank god we didnt jump on the euro bandwagon,
  • Firstly its a loan not a gift.

    Secondly the problem has been that the European Central Bank has been precluded from doing the job of a central bank by easing the stresses of the banking system.

    Our Government massively bailed out our banking sector via the B of E, in addition to which the B of E has been creating money by Quantitative Easing to help add liquidity in financial markets.

    The problem here is that the structure of the Euro. If you are going to have a single currency, the central bank must be able to act like a central bank. The Germans have been holding this all up. Germany has massively benefited from the Euro and it seems, finally, that they have moved to allow this to happen.

    This is a loan to the Spanish banking sector just like the ones we loaned to our banking sector.
  • I know I'm in a minority of one with my opposition to the EU.

    But rest easy. The UK will find more billions to pay via the IMF and British citizens will be royally shafted as usual.

    So don't worry!
    Len you're not alone.
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  • Firstly its a loan not a gift.

    Secondly the problem has been that the European Central Bank has been precluded from doing the job of a central bank by easing the stresses of the banking system.

    Our Government massively bailed out our banking sector via the B of E, in addition to which the B of E has been creating money by Quantitative Easing to help add liquidity in financial markets.

    The problem here is that the structure of the Euro. If you are going to have a single currency, the central bank must be able to act like a central bank. The Germans have been holding this all up. Germany has massively benefited from the Euro and it seems, finally, that they have moved to allow this to happen.

    This is a loan to the Spanish banking sector just like the ones we loaned to our banking sector.
    I don't think they have seen the light though Bing. They need to have the ECB stand behind all sovereign debt (note - not private debt) to back up the nations, they also need to allow the smalgamation of national bonds into a collective euro bond. These ad-hoc bailouts don't provide a cure, they just ease the symptoms for a few more weeks.

    Like you say, Geany has benefitted massively from the Euro, to the detriment of the nations now being bailed out - they don't seem to be able to acknowledge this from their high horse.
  • I think we're on an even higher horse, having not joined the Euro. It won't make us any friends though (no change there then).
  • edited June 2012
    I think we're on an even higher horse, having not joined the Euro. It won't make us any friends though (no change there then).
    No High horse from me, I actually though we should have until a year ago !
  • Can I just say how faintly amusing it is to me that before the last election the Tories blamed Labour for all our economic woes and now they are saying the current problems are not caused by their policies but by Europe dragging us down. Is that the definition of having it both ways?
  • The point on the UK funding other nations is that the money we loan we borrow at 3% and lend out at 9%.

    I was pro Euro and still am but of course you have to take out the lying and mis management factor. The greeks lied to join the euro and the rest of europe must have known.
  • Can I just say how faintly amusing it is to me that before the last election the Tories blamed Labour for all our economic woes and now they are saying the current problems are not caused by their policies but by Europe dragging us down. Is that the definition of having it both ways?
    Under Labour we would have been in a worst situation than we are in now but all the Tories are doing is slowing down the amount of debt that is rising. I think Osbourne is right in some ways because the Euro is in a complete mess but I agree we are not doing enough to stimulate the ecomony which is why we are back in recession.

    Reason why is because we are borrowing more money than we are recieving and we are still contributing to the IMF. We need to cut borrowing dramatically and reduce our own contribution to the IMF.

    As for the eurozone, I think this whole European union will collaspe because of the Euro currency. It will never going to work because all European countries have different economics and countries like Greece, Spain and Portugal who are in a bad state, have downgraded the currency which has taken the other countries down. Currently, our Pound rating has been growing stronger against the Euro because of this and thank christ we never joined the Euro because I believe our ecomony would be worse off now than it is today. I really do hope for Europe's interests, they go back to their own currency, de-value and run their own economy otherwise this will get worse for everyone.
  • edited June 2012
    Can I just say how faintly amusing it is to me that before the last election the Tories blamed Labour for all our economic woes and now they are saying the current problems are not caused by their policies but by Europe dragging us down. Is that the definition of having it both ways?
    This double standard continues even today. The Tories are never tired of saying "The huge debt left to us by The Labour Party" conveniently forgetting that every other ecconomy in the world is in the same shit. Fairly sure Gordon Brown is not at fault for that. Before a row starts I am perfectly aware that The Labour Party would say exactly the same if the boot was on the other foot. All politicians are jank. FACT

  • As we all know, it's typically politician double speak, forked tongue.

    The one thing politicians rarely do, is take responsibility for their own actions and reactions.
  • edited June 2012
    The point on the UK funding other nations is that the money we loan we borrow at 3% and lend out at 9%.

    I was pro Euro and still am but of course you have to take out the lying and mis management factor. The greeks lied to join the euro and the rest of europe must have known.
    The whole sub prime thing that arguably caused the original crisis back in 2008 was based on lending to bad risks at higher interest rates.

    The UK might borrow at 3% as you state but I reckon Charlton are more likely to win the premiership than the UK actually physically recoup the 9% you mention!

    Hence my concern.

  • Something the Tories learned from Labour. When it was good it was all Labours policies when it was bad it was the Worlds fault. Both Blair and Brown wanted LESS regulation on the banks and Browns right hand knobhead was Ed Balls
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  • Problem is that the job of Her Madge's Loyal Opposition is to oppose Her Madge's Govt. This is fine until you get the situation where both parties have been basically doing the same things, so in criticising the other, basically you end up criticising yourself. Party politics dictate that you are left with no option other than to uncomfortably try to invent/lie your way out of the conundrum. How I wish Spitting Image would return!
  • edited June 2012
    Well GH I agree with your comments about Ed Balls but let us not forget, it was the Tories under Thatcher who followed Reagan's lead by freeing up and deregulating the financial system when they came to power in 1979. Since then and when Labour were in power, the Tories continuously called for less and less regulation.

    With the greatest respect to all, this is not a sub-prime failure, this has been a failure resulting from the disastrous de-regulation of banking and the removal of controls over currency exchanges which started in the late 1970's.

    Casino banking has been permitted on a huge scale. Some argue that allowed growth to occur but whilst economies and wealth of average citizens grew a bit, the wealth of the super-rich grew massively.

    Major western economies threw out the old Keynesian controls and introduced casino economics. Letting people gamble with others money with little or no regulation for massive personal gain has been the problem.

    Most blame the bankers because they carried out these massive gambles, but I blame collectively the political doctrine which allowed that to happen and then the spineless toadying of successive politicians embodied by Messrs Brown and Balls who turned a blind eye to the massive bust which was coming.

    We are where we are and there is little room for manoeuvre for our Government given the hand dealt them. I read that people like Balls believe that the classic Keynesian approach is required now to pump prime the economy to support growth by spending especially on capital projects, with a temporary cut in VAT. He has been calling for this now for two years. It has been important for the Government, at least in its rhetoric, to stick to its plans. Of course plan B was built into plan A anyway as there are automatic stablilisers for extra spending already in place if growth stalled as it has.

    Osbourne bemoaning the problems of the Euro zone in its drag on our growth is understandable but its only part of the issue. Germany for example has strong growth which is counterbalanced by recession in other Euro countries. Germany is a very strong skills and manufacturing based economy. i.e. they design and build things. Our problem is very much based around from where is growth coming. We have a structural problem of over-reliance on the financial sector and so we need structural change to a more manufacturing and skills based economy. That is why securing sustainable growth in the UK is much harder.

    There are no simple causes or solutions here. Blaming it on Labours record and the Euro is facile and opportunistic just as Balls and co calling for a growth strategy for extra borrowing and tax cuts to pump prime spending is similarly opportunistic. The reasons why we are where we are go much further back and the solutions are much more long-term and structural.
  • Top post Bing
  • Something the Tories learned from Labour. When it was good it was all Labours policies when it was bad it was the Worlds fault. Both Blair and Brown wanted LESS regulation on the banks and Browns right hand knobhead was Ed Balls
    And yet both Brown and Balls were opposed to the UK joining the Euro...



  • Firstly its a loan not a gift.

    Secondly the problem has been that the European Central Bank has been precluded from doing the job of a central bank by easing the stresses of the banking system.

    Our Government massively bailed out our banking sector via the B of E, in addition to which the B of E has been creating money by Quantitative Easing to help add liquidity in financial markets.

    The problem here is that the structure of the Euro. If you are going to have a single currency, the central bank must be able to act like a central bank. The Germans have been holding this all up. Germany has massively benefited from the Euro and it seems, finally, that they have moved to allow this to happen.

    This is a loan to the Spanish banking sector just like the ones we loaned to our banking sector.
    I don't think they have seen the light though Bing. They need to have the ECB stand behind all sovereign debt (note - not private debt) to back up the nations, they also need to allow the smalgamation of national bonds into a collective euro bond. These ad-hoc bailouts don't provide a cure, they just ease the symptoms for a few more weeks.

    Like you say, Germany has benefitted massively from the Euro, to the detriment of the nations now being bailed out - they don't seem to be able to acknowledge this from their high horse.
    Well I agree, the full light has not been seen at least publicly acknowledged but this is a major shift and it really is the Germans who have had to blink.

    France, the UK and some others have been calling for the creation of Euro-bonds now for some time. The Germans have set their face against it.

    It may be counter-intuitive to the Germans but the Euro's chance of survival, the long-term health of Germany's Europe's and the World's economy will be massively improved by allowing the European Central Bank to create Euro- bonds backed by all of the Euro states including Germany. Maybe that political penny has begun to drop. Germany are calling for greater political integration as a price for further Euro reforms. They need something to show for their financial backing of the only real course of action that can save the Euro now.
  • The failure of the the original banking crisis is not the only problem with the Euro. It is a totally flawed concept. It is beyond me how anybody could think that countries with such diverse economies could have the same currency and it would not cause problems of huge unemployment in certain economies.
    Germany must have known this would result in huge unemployment in southern (less effecient) economies. They couldn't care less as long as they could sell their goods to them and prosper. However some very predictable chickens coming home to roost.
    The only long term solution is the break up of the Euro. It will cause initial pain. Unless this happens it is difficult to see how Spain will ever reduce unemployment below it's current 25%.
  • The failure of the the original banking crisis is not the only problem with the Euro. It is a totally flawed concept. It is beyond me how anybody could think that countries with such diverse economies could have the same currency and it would not cause problems of huge unemployment in certain economies.
    Germany must have known this would result in huge unemployment in southern (less effecient) economies. They couldn't care less as long as they could sell their goods to them and prosper. However some very predictable chickens coming home to roost.
    The only long term solution is the break up of the Euro. It will cause initial pain. Unless this happens it is difficult to see how Spain will ever reduce unemployment below it's current 25%.
    I would pin the blame even further on Germany in that they had a practical experience of the creation of a single currency when re-unification took place and they took on the economic basket case which was East Germany.
  • edited June 2012
    The failure of the the original banking crisis is not the only problem with the Euro. It is a totally flawed concept. It is beyond me how anybody could think that countries with such diverse economies could have the same currency and it would not cause problems of huge unemployment in certain economies.
    Germany must have known this would result in huge unemployment in southern (less effecient) economies. They couldn't care less as long as they could sell their goods to them and prosper. However some very predictable chickens coming home to roost.
    The only long term solution is the break up of the Euro. It will cause initial pain. Unless this happens it is difficult to see how Spain will ever reduce unemployment below it's current 25%.
    The Euro was always a political rather than economic project.

    The unspoken idea being to tie individual nation states into a bureaucratic superstate.

    The idea of a superstate is not new. It goes back to Monnet and Schuman in the fifties and even earlier. The Euro is just the tool that was chosen.

    What is happening now is deckchair rearranging on the Titanic while the leaders (including the Europhile Cameron) come up with a better scheme to achieve their political utopia.

    You can bet your bottom dollar that all the political rhetoric from the leaders of EU counties will refer to "greater political integration" or words to that effect.

    You won't read any of this in the comics that pass as the British press of course.
  • Superb debate guys - I was afraid when I made my post that it would spiral into name-calling and result in the thread being closed - glad that's not happened.
  • I would pin the blame even further on Germany in that they had a practical experience of the creation of a single currency when re-unification took place and they took on the economic basket case which was East Germany.

    Actually I blame the French...

    Germany wanted a small Euro - Germany, France, Benelux, the UK - ie those countries with similar economies and then allow other European nations to join when they were capable economically of being a member and having their monetary polcy dictated to by the ECB. France though thought that Germany would dominate this small Euro and argued for more nations joining it, hence they turned an economic decision into a political one.

    To join the Euro the applicant nations had to go through a series of convergence tests. I forget the exact criteria but debt had to be at a certain level and there had to be sufficient reserves of gold and/or currency etc in the bank. In the case of Italy they didn't have enough gold reserves so they blatantly inflated the value of what they had to meet the criteria.

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