Here is something interesting from the G-20 meeting:
“In this context, we welcome Spain’s plan to recapitalize its banking system and the Eurogroup’s announcement of support for Spain’s financial restructuring authority. The adoption of the Fiscal Compact and its ongoing implementation, together with growth-enhancing policies and structural reform and financial stability measures, are important steps towards greater fiscal and economic integration that lead to sustainable borrowing costs.”
The G-20 and Eurozone support Spain pulling down euros from the ESM (European Stability Mechanism). Yes, the ESM was designed to be part of the long term solution to the crisis, but it’s also been long in the making and not even approved yet.
Calling this out in the G-20 document tells the world we’re going to see more of this for Spain, Italy, Ireland and the rest in the near term future, and it’s going to happen sooner rather than later.
Isn’t all that’s really happening here is a process like:
1) Bank assets decline in value
2) Bank capital is impaired to the point requiring a bailout or insolvency
3) Bank gets bailout money via EFSF/ESM
4) Bank assets decline further, repeat
Money that could be used for growth enhancing stimulus is being poured down the drain. Especially in Espana where the mortgage assets are relics of an absolutely massive housing bubble.
Sounds about right Erik