Photo: Bloomberg TV
Jefferies’ strategist David Zervos is very bullish on the Spain deal.His new note, titled Black Swan Down – Viva La Espana, hits on a lot of the same ideas that we touched on here in our original take on the announcement.
This is his key point:
First and foremost it is a BANK bailout, not a state bailout. It is early days but maybe, just maybe, European officials have finally figured out that separating state financing from bank financing is important. I don’t want to get too excited, but it really does seem like they might finally understand that what they forced the Irish people was one of the greatest policy errors of all time! If so, it is a major change in crisis dynamics and a major step towards creating some form of financial union.
Note that this is being disputed by some, who say that ultimately this is still a sovereign bailout, and not only a sovereign bailout but one where the money is senior to other debtholders.
He goes on to note some of the other beneficial features, such as the huge size of the deal and the lack of conditionality.
And as for market reaction:
I’m sure these are not the last words on Spanish banks or the sovereign debt crisis. The ups and downs will continue, and in another week we will have to deal with Prime Minister Tsipras. Greece is still likely to exit and there will surely be further turmoil! Its not a one way ticket to risk on heaven (which is why we always hold onto those blue eurodollars), but come Monday morning, I would expect we see a +25pt spoo day as markets digest this new and improved BANK bailout structure.