Euro-zone countries would still have to guarantee the loans their banks receive from the region’s permanent bailout fund, the European Stability Mechanism, even if it directly recapitalizes them, a senior European Union official with direct knowledge of the situation said.
The remarks Friday cast doubt on what was seen as a breakthrough at a euro-zone leaders’ meeting last week, where it was decided that once a central euro-zone bank supervisor was in place, the ESM would be able to directly recapitalize banks.
“I need to make clear what the ESM can do: The ESM is able… to take an equity share in a bank. But only against full guarantee by the sovereign concerned,” the official said. He added that while the member state’s guarantee wouldn’t directly show on the government’s official debt burden, the loan “remains the risk of the sovereign.”
Here is more, from the excellent Matina Stevis, and I suspect next time the markets won’t be tricked so readily. Not good.
We have long since passed into the realm of farce.
They need to come up with some way to work LIBOR into these agreements.
There was a fascinating interview a few weeks ago with a fellow who specialized in distressed sovereign debt. He said that you can pick this stuff up for 10-15 cents and it usually settles out at 35 cents once the dust settles. One would also need large brass ones as well as a good supply of recreational chemicals, but I digress.
This deal was about subordination. If the funds were lent directly to the bank, they would be one more creditor, subordinating all other creditors. Bad, but limited to the bank credit structure which is wiped out already.
But if they lend to the sovereign, all other sovereign debt is subordinated. Maybe not in contract or by agreement, but in the crunch crisis meeting some weekend in the future where those not in attendance get screwed.
Anyone who thinks Germany will willingly subordinate their interests in exchange for writing a large check is delusional.
Of course if the European authorities prepared en mass for an alien invasion all this would become a distant memory while luxuriating in the resulting prosperity.
Even as stated, it’s still a huge improvement over the initial proposal. Anyway, one must be careful in over-interpreting comments from “a senior European Union official with direct knowledge of the situation.” That “senior European Union official” has his/her own reasons for leaking this to the press, which of course, we are not privy to. Posturing in the press, whether on the record or off the record, should not be over-emphasized.
Where did people get the idea from,
that the last summit decisions mean that northern taxpayers pay the mortgage of unwilling Spaniards ?
Of course Spain is 100% liable for spanish debt. These are spanish mortgages, given by spanish cajas, under spanish supervision, payed out to spanish developers, default decisions made by spanish judges.
What becomes more and more clear, that a lot of folks are dreaming up ever new schemes for the purpose of thinly veiled involuntary (bad debt) transfer, or as common people say : lying and thieving
http://yle.fi/uutiset/urpilainen_misquotes_on_euro_spread_like_wildfire/6209783
“I cannot see how you can ensure the stability of a monetary union by violating its legal provisions,” Mr Weidmann argued. “I don’t see how you can build trust in a system that violates laws.”
http://www.ft.com/intl/cms/s/0/641237a8-0dcd-11e1-91e5-00144feabdc0.html#axzz1vJuSv4N9
Before the Euro would become a giant thieving scheme, it would be better to let it crash now.
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