Michala Marcussen, Société Générale’s global head of economics, is one of the many experts telling clients this morning that the the 100bn euro package should be enough to credibly recapitalize the Spanish banking system.However, Marcussen highlights concerns over the proposed bailout mechanisms (the EFSF and ESM), raising questions over efficiency and capital, especially if the crisis escalates and concerns over the Spanish and Italian sovereigns rise.
Long before yields surged today, Marcussen published this note on the amount of bailout funding left and speculated on what would happen next should the debt crisis deteriorate:
To date, the EFSF has entered into programmes worth €213.3bn. The total lending capacity of the combined EFSF and ESM is capped at €700bn. Assuming the full €100bn of the latest program is requested by Spain, this would leave €400bn of free capacity. The Spanish government’s funding need out to 2014 amount to around €370bn and Italy €620bn. While neither country have requested a programme or are seen to be in any immediate danger hereof, this is ultimately the benchmark that the market judges the ESM capacity on. We have long held the view that euro area leaders would have to review the EFSF/ESM structure both in terms of efficiency and capacity. Our expectation is that the EFSF/ESM could well be granted a banking licence and see a new boost to capacity (probably and additional €500bn). While hopes are pinned on the 28-29 June European Council; our concern is that it will take renewed financial stress for this to materialise.
With yields surging, EC leaders may have the sense of urgency needed to take those next steps that Marcussen forecasts.