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One reason why the latest Spanish bailout might not inspire much confidence is that there really aren’t many details out. At all.Presumably more will trickle out over the coming days, after the formal request for outside aid is made.
In the meantime, everyone has two questions.
The first is huge: Will this bailout (which is technically not to the Spanish government, but to an entity called FROB, which will recap the banks), be seen as being debt which is senior to other Spanish debt. Presumably the answer is no, because if it’s senior debt, then there’s a risk that Spain loses normal market access in the bond market. Still it’s a question.
The next question is: Is it enough? Is $125 billion enough to replenish the banking system. Obviously this will be dependent on future economic and financial conditions.
And then another bonus question is: Will this lead to a new structure of bailouts going forward, or a renegotiating of existing ones. The Irish are already said to want the Spanish deal, which is understandable, since their crises were pretty similar, and yet Ireland had to go into a “programme” that involved austerity, and the IMF and all that. Spain is getting its money directly into its banking system, and kind of bypassing the government, and it didn’t need to pledge any new reforms. In fact in Spain the talk is of loosening austerity goals.
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