These days, if someone even sneezes in Madrid, Barcelona, or Córdoba (one of my favorite places, actually), investors go into intensive care all over the world.
This new Spanish influenza has been wiping out paper value from one end of Europe to the other. This morning came word that many of the regions in the country will need help. Attention is now directed from focused support for banks to wider calls for a sovereign bailout.
And that is where the whole matter can turn nasty. Word is that we should now expect some Italian cities to be requesting money in the near future. Seems California and Pennsylvania are not the only locations where cities can go bankrupt.
The accord reached at the end of June by the Council of Europe (the EU member heads of government) to bail out Spanish banks is already derisively referred to as "bailout lite." As the beer commercials attest, this is going to be "less filling."
Unfortunately, it is the heavier version that Europe now needs.
The move is part of an agreement Spain's Prime Minister Mariano Rajoy made when he accepted a Eurozone bailout for his country's ailing banking system. Rajoy surrendered to mounting pressure to at least make an effort to avoid a full state bailout.
"We have very little room to choose. I pledged to cut taxes and now I'm raising them. But the circumstances have changed and I have to accept them," Rajoy told the national parliament.
As protests erupted from anti-austerity crowds that gathered in Madrid, Rajoy explained plans to roll back social welfare protections and immediately raise taxes so that he could secure emergency aid and placate jittery investors.
Rajoy announced higher taxes and cuts to unemployment benefits, union pay, and civil service perks.
Amid boos and heckling, Rajoy told the parliament, "These measures are not pleasant, but they are necessary. Our public spending exceeds our income by tens of billion euros."
The moves highlight how Rajoy and Spain are at the mercy of the EU"s tough bailout provisions if the government hopes to get any more money for its struggling banks.
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I believe it does.
Why else would the European Union have bent over backwards to "save" a member nation that: A) Accounts for 2.01% of the EU by trade volume; and B) Would essentially be like letting Montana go out of business - no offense to Montanans or Montana!
More to the point, if things really were under control, why would European Central Bank President Jean-Claude Trichet say that risk signals for financial stability in the euro area are flashing "red" as he did following a meeting of the European Systemic Risk Board in Frankfurt?
The short answer: Because he knows what the European banks are desperately trying to hide from the rest of the world - that there are still enormous risks and they're even more concentrated now than they were in 2008 at the start of the financial crisis.