Spain with a $1 bailout...

Will Spain ask for a $1 bailout help from EU rescue funds. No, may be it will ask for more - may be 1 Euro ($1,30) as this is the Euro area currency...
Are you joking, Dobri...?
No, exactly no...

Spain needs much more money to avoid the default. In fact it needs hundreds of billions. But it needs just 1 Euro from the ESM (European Stability Mechanism). This "loan" is needed to formally unlock the other saving help - the money-print promise given from the European Central Bank (ECB). The central bank some months ago said it will buy an unlimited quantity of government bonds of countries that have an agreement with ESM and are implementing austerity reforms.

So seemingly ECB will not print so much money and will print only after the ESM with its strong pre-helping conditions is already in the game.

But this is just a theoretical promise. In fact troubled countries do not want to make any serious reforms and they are not doing them. Instead they are just waiting for the money-print that artificially will lower the debt interest rates - in a way this was done by FED for Obama's bonds. This easy decision is the dream of lazy and indebted leaders so the only they are doing is searching for a mechanism of going round the rules. That is why now Spain is looking for a decision how to formally unlock the ECB bond-purchases, without making saving cuts. There are much ideas but with one and the same philosophy - the country will not contract painful measures with ESM, but at the end will receive easy money in pockets. In one or another way, asking just formally for an aid will be the final decision.

If you ask me about jokes, yes there is a joke today. Moody's confirmed the investment credit rating grade of Spain at Baa3. This means that according to Moody's Spain is a reliable debtor that we can trust and invest in its bonds. I am curious why nobody invests and interest rates are going up. But Moody's thinks so - may be in an effort to amuse us and make laugh... :)

In fact Spain is a D-rated country, as in June it has already requested an international money aid for saving its banks. Spain was not capable to save them alone and using free market financing. So such type of country is D. Even before that, by using the Dobri's formula Spain was at under investment - speculative, level of BB. So such a rating accurately corresponds to the lack of enthusiasm among investors to buy Spanish bonds.

But when the Central bank is on arena, nothing other means. You need neither credit rating nor investor confidence. You need just a smile on Mario Draghi's face. And to make Draghi smile, you need just a $1 rescue "loan" from your partners in EU... :)))

Dobri
October 17th 2012

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