Things are turning upside down in Europe.Via Bloomberg, there are some headlines about German Finance Minister Wolfgang Schäuble saying that it would be foolish by Spain to request a full bailout.
He even apparently used the word “daft.”
Why? Because it would “risk further market turmoil,” according to Bloomberg headlines.
Schäuble also warned that Spain musn’t diverge from its economic reform path.
Given that the entire moving forward of the bailout mechanism at this point requires Spain to ask for a bailout, this is…unhelpful.
In a particularly pessimistic note to clients today discussing the ECB and its new OMT bond-buying plan, BofA economist Laurence Boone said the bottom line right now is that “The question therefore becomes how fast countries put themselves under the ECB’s umbrella, and how much they then comply with their commitments.”
On the other hand, ECB governing council member/Central Bank of Cyprus head Panicos Demetriades said in an interview this morning that the ECB might not even have to buy any bonds because just the threat of OMT was enough to calm markets.
Boone doubts that’s the case. She goes on in her note:
However, it is more likely that Spanish politics will get in a way of a rapid solution. Overall we expect discussion on conditionality to be announced soon –possibly as soon as the Ecofin meeting 14 September- but not necessarily concluded rapidly, leaving official request for support for later, when higher yields will eventually push Spain to ask for support.
Clearly, there is some cognitive dissonance on how to move forward among euro area leaders at the moment.
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