ECB & SPAIN: Stand by for the big-guns barrage


Draghi….cometh the hour….

Swiss credit source tells The Slog: “We’re talking very, very big here: this is going to dwarf anything done for Greece, and it is going to make the bank 200% responsible for stopping the collapse”

The regions of Spain don’t come much more affluent than Catalonia. So the depth of Spain’s problem was made brutally clear this morning when the Catalans officially requested  the full works – total bailout – hoping to apply for a cool  €5.23 billion from Madrid. I understand that Mario Draghi knew about this last Friday, but it isn’t the only thing on his radar.

As The Slog posted two days back, Draghi has been playing a dangerous game of poker with Madrid; it now looks as if – unless he does something big, and soon – his bluff will be called bigtime. So much  money was withdrawn from Spanish banks last month, the total overtook anything the EU has seen since Draghi’s ECB began collecting the data some fifteen years ago – before EMU was even a reality.

Although the markets seemed curiously calm in the light of these developments, my good source in the Madrid money markets was sanguine on the subject:

“Our view here is that either Draghi goes nap on solving the problem now, or the euro is history,” he told me, “so there’s no point in panicking just yet. If, however, he hasn’t moved by say Friday, well, people will get edgy. If he’d gone to Jackson Hole, we’d all have gotten very edgy.”

In fact, it turns out that the entire executive board of the ECB has cried off the Wyoming jolly. So something is very clearly afoot.

Eight days ago, Spain’s Minister for the Economy Luis de Guindos told news agency EFE that the ECB “must deploy unlimited bond buying” before too long. It’s pretty obvious that Supermario did that earlier today as the bond yields fell at the latest Spanish auction. But the expectation of serious firepower being applied to the debt issue is the overriding reason why the Central Bank’s Chairman personally ordered all exec members to stay in Europe “for at least the next ten days”.

A Swiss-based bank credit specialist I’ve known for some time now insists that it is bank viability, not bonds, that’s kept the EU’s central bankers chained to their Frankfurt desks.

“I think too many observers are underplaying the [Spanish] banking liquidity thing,” he said last night, “Draghi knows what to do and how to do it, but I think only in the last few days has he grasped the size and the inevitability. We’re talking very, very big here: this is going to dwarf anything done for Greece, and it is going to make the bank 200% responsible for stopping the collapse”.

My own view – having spoken to a range of commentators and traders in recent days – is that there comes a point at which bank liquidity and sovereign debt are inextricably linked – and I sense that the Calatonia request screams out that this point has been reached. Catalans produce 20% of the Spanish gdp, but a spokesman from the region said categorically that they “would not accept any political conditions for the aid” –  a classic anti-Madrid emotion based in history, but also I suspect a swipe at the ECB in general, and Draghi’s poker face in recent times.

Too many regional and banking dominoes falling too quickly will make today’s bond purchases irrelevant. From here on, it’s about an irreversible decision from the Central Bank. And it’s abou the euro.



59 thoughts on “ECB & SPAIN: Stand by for the big-guns barrage

  1. Wouldn’t it be ironic if the pressure to create a more integrated Europe resulted in increased pressure for the current sovereign states to start disintegrating. Think Spain and Belgium for beginners.

  2. It’ss no surprise to me the ECB board has cried off Friday’s jolly at Jackson’s Hole. There is surely some clause in the Patriots Act to ensure the whole lot are arrested and held without trial.

  3. I thought they’d wait for Bananabux Bernanke to throw the first pitch but it looks like mario is going to be the guy that history points the finger at.

    Alternatively they have telegraphed their “not going to Jackson (corn)hole because it’s serious now” move as a new jawboning tactic to try and hoodwink the markets and buy a little more time. Draghi has only one weapon, the printing press: it will work for maybe 3 months, then a whole new concoction of disasters will overcome him. F***ing counterfeiter.

  4. I certainly wouldn’t “accept any political conditions” either, if anybody were to sling me the odd €5.23 billion. So, homage to Catalonia.

  5. There’s no irony in it. The EU has always strived to enhance regions and subdue nation states. It’s part of the plan, since the nation state is the natural enemy of “ever closer union”.

  6. Who says they won’t print now? I said it all along.
    To the tune of The Runaway Train:
    The runaway press rolled off the dosh as she blew, she blew
    The runaway press rolled off the dosh as she blew, she blew
    The runaway press rolled off the dosh as all the folks said ” Oh my gosh” as she blew blew blew

    Inflation hit a record high as she blew, she blew
    Inflation hit a record high as she blew, she blew
    Inflation hit a record high food prices went through the sky as she blew blew blew….

  7. Laughable that now the work-shy state loving southern europeans are demanding their northern neighbors just hand over the dosh without conditions…

    I’ve said it before: Germany will not ultimately agree to a transfer union.

  8. What are the current European legal provisions regarding citizens’ arrest?

    This clown-posse needs stopping.

  9. Agreed………..and then the UK will also have to print print print………… Its on the horizon boys and girls………… the hyperinflation……….the unaffordable food, the people on the streets………….its all coming into eyeshot !

  10. Ask yourself: If you were Mario Draghi would you want to be responsible the the collapse of the Euro? The answer is no. So, expect every stop to be pulled out and rule broken. We are now, I believe approaching a time where absolutely anything is possible, and IMHO will ultimately lead to bloodshed on a massive scale. The upcoming hikes in food prices from the US drought situation is going to be bad enough but, couple that to runaway inflation and increasing unemployment and you have a recipe for revolution. Nothing stirs a nation like a hungry belly.
    Perhaps also, a window of opportunity for Islam?

  11. @Jo: You know how it is, You would be the one arrested, under some trumped terrorist charge no doubt. Don’t go there, it’s the innocent that are in trouble these days, not the perpetrators.

  12. Yes, I read that bit about the Catalunyans refusing to allow any conditions on their €5bn sub. The trouble with that sort of statement is that it flies in the face of reality when you are asking for help. And frankly looks a bit cheeky, given that Madrid has no funds and therefore the request can only be fulfilled by the bailer-out of last resort, Germany.

    Interestingly, the Spanish health services drug bill fell 24% in one month when a co-payment scheme started recently. No doubt there are different ways to interpret that, but in the UK, nearly everyone gets free prescriptions so there’s scope…

    The fun is beginning. Well, not fun, but it is starting.

  13. Thanks for this link. I had not caught up with 0H today. Their comment, strong to say the least, about Spanish banking reserve manipulation is in my view entirely correct and echoes what I have been saying for the last several years. The whole thing is as near to a fraud as you can get. Banks mess around with their reserves, fail to provide for obvious and irreversible losses, hope for the best while never planning for the worst and are, in short, an economic black hole of serious proportions. How the Spanish government got away with allowing this sort of nonsense with the situation well known in the markets, I don’t know, but it’s all linked with the dreaded housing market disaster. I do hope, after the dust has settled, that Brussels/Berlin find a way to prevent their vassal states from ever doing this sort of thing again. ‘No political conditions, now!’

  14. Could be ‘game over’ before 12 September, at this rate.Those pesky markets just will not do as they are told.With respect to OAH and kfc,’print, print,print’ as a Karlsruhe verdict,without a referendum, would mean a lynching of the judges.OMG,it is right to be long sterling,despite Gideon.

  15. Just imagine Spain getting a condition free bailout. They’d be all lining up, right behind Italy. Only way to fully fund that is to print bigtime. Germany has to accept that or get out.

  16. @William; I still think the Karlsruhe will find a way of fudging it, leaving it open to interpretation, which of course will give a free hand to Merkel. It is also conceivable that to give Germany a referendum might cement their support for the Euro and give an even stronger hand for Merkel to play but, have they the time? Printing is their only option given the conditions.

  17. Right from the off Germany was always in the worst position. They believed they would overcome, now, they are damned either way, cornered. I am told by what I consider a reliable source that the far right are openly marching in Germany these days. Doesn’t bode well does it?

  18. I’ve decided that if Mario Draghi can make counterfeit money in his basement without fear of prosecution then so can I!

    I’m currently running off a batch of €50 notes that features a very rare doodle of Angela Merkel taking a dump. It’s all legal tender, Marios fakes are a-ok and so are mine.

    So who wants a bundle of say…a million at a time?

  19. @kfc …”but, have they the time? Printing is their only option given the conditions.”

    Some might say this is the brinkmanship designed to get courts, governments and people to capitulate. Follow it with a few sky is falling scenarios and voila! Europa. There….that wasnt too painful was it?

    Tactics nauseating, outcome unthinkable.

  20. @Aflatoxin; In respect of your reply to me above, I agree entirely. I have said for a while now that Merkel is engineering a situation which has a, ‘Vista too awful to contemplate’ in order to realise her dream. The English Oxford Dictionary should revise its definition of megalomaniac, it should just read, Angela Merkel.

  21. This may not lead to inflation at all.
    For many years the banksters have built up an unimaginable shortage of money through the fractional reserve system. All that virtual money lent out to purchase assets of all sorts, particularly property, created a massive black hole.
    This printed money will simply go into the black hole. Then when the hole is full, it can be sealed over and banking will have to return to the previous £1 for £1 system. So in future, it’ll be only when JW or similar walks into his local branch with his cash mountain, that they can give the next few on the waiting list a mortgage. Ah! fresh air, just how it used to be, just honest money moving around.
    Of course, asset values will have to ease down to accomodate this return to the real world after 30 years of artificial money, but hey, it can’t come soon enough for me. Meanwhile don’t go pondering how you should ‘invest’ your hard earned cash, ie gold or something just as crazy, to protect yourself from a non-event. Keep it in cash, there will be some ‘good value’ around soon.
    Oh! and by the way, the days are numbered for those masses of big shot banksters. There’ll be no room for them in this new good old honest style of banking – well here’s hoping anyway.

  22. @Chris: I would like some €50 with Sarcozy performing an act with Geli, well, I sure you can imagine the rest…Oh, leave him wearing the platform soles will you?

  23. @Mike; Good luck with that one. Once those presses get into full swing there will be no stopping them. Hey! we can print our way into growth and prosperity, house prices can rise infinitely, wages will never stop rising. Ah, the good old days….

  24. @ mike.’Keep it in cash,there will be some ‘good value’ around soon.Agreed. Shares in the usual quasi monopolistic multinationals.

  25. Thats what should happen in a free market; which is why it won’t happen in todays socialist world. get ready to see them do absolutely everything to protect the banks and bankrupt governments…that’s the point the deflationists often miss (I’m not necessarily an inflationist); a little bit of deflation and the banks and governments go down!

  26. Reblogged this on Machholz's Blog and commented:
    We in Ireland have been shafted we were forced into a Bank bailout that in turn was not a bailout of the Irish State but a bailout of unsecure greedy and gambling faceless bondholders who by the way were and are powerful enough to get the ECB to insist the Irish government of the day accept this poison chalice. Some 3.5 years later we are lauded as been good Boys and Girls, we are been prepared now for the latest round of endless “Austerity measures” (our medicine) to get us back on our feet. But for what? So we can continue to service debts that are not ours!
    We have been enslaved and our nations assets that are been stolen from right under our nose. With the help of our gutless and treacherous puppet politicians who have been bought off by lottery salaries and pensions and promises of happy ever after “fibs” of economic growth and “stability going forward” every day we hear from these same self-serving politicians that we are “all in it together “ and “we all need to put our shoulders to the economic wheel “ .I could go on and on but the fact is this whole business has been a disaster for Ireland and its people we should have told the gamblers to get stuffed and the ECB has lied to us.
    It’s time to call a halt to this madness. Spain is powerful enough to stand up to the school yard bully boys in the ECB /Berlin. I am willing to bet you won’t see dictates like to ones we in Ireland are receiving ,Spanish sovereignty will be protected and fought for by the Spaniards and rightly so! However the fact is different rules apply to the smaller nations within Europe. Spain will hopefully force the banker autocracy in Brussels and Frankfurt to face the facts that the euro as it now stands is a failure and a more realistic approach to the banks and their debts must now be enacted like facing up to the real debts on hidden off their books.
    Large banks must be cut drastically down to a size. A size that will be sufficient to service the local economies .The gangsters running them must be brought to justice. This all but a dream as I fear we will yet again get some mombel-jumbel from the ECB and a plaster will be applied and the tragic saga will continue until the problem gets a life of its own and a total collapse of all financial markets around the world will be inevitable. 2008 was just the intro; the real disaster is going to be mega!
    The derivatives time bomb is minutes away from exploding in all our faces! This crisis in Spain has the potential to set this bomb off!
    ECB your move!

  27. The state that can not print it’s money is not a state, it seems.
    But a region that thinks of printing it’s own money could be a state.

  28. ‘…like facing up to the real debts hidden off their books.’

    How realistic is that? The whole house of cards would collapse.

  29. The €100s I’m making have a very descriptive image of van Rompuy and a herd of goats.

    It’s all good, sound currency.

  30. @mach: I’m with you my friend (out here in the west). Noonan is a coward and a whore in a crowd of them. He could and should show the letter but he hasn’t got the balls (or the need, given that his EU handlers wouldn’t like it)

    But reality says we’re too small to be a real fight for them. Spain will not be easy to wrestle down. History is something they never learn from, spanish history is littered with war, indignation and defiance. That’s an interesting battle for the EU to wage, it will destroy them and in the process give us a chance at a new start.

  31. Pingback: European Crisis Update-from The Slog « muses of the moment

  32. Your “reliable source” has no clue at all, it seems. There are the usual ridiculous beer-can-carrying skinhead “Neo-Nazis” having serious trouble getting more than 150 people on the streets in Berlin being faced by 5000 counter-demonstrators. The Neo-Nazis marched in 1962, they did so in 1982 and they are doing so in 2012, an they are a tiny minority of people to silly even to form a real and noticeable political power. Do not be fooled by those two rightwing parties having a few members sitting in some city and state parliaments – they are heavily under watch of the state- and constitution-security and it is well known that there are more under-cover-agents of the intelligence service in these parties than “real” members. Besides, the ruling parties need “the danger” and the “threat” on the far right to hold their position in the middle, an old and well-known political game in Germany since 1949.

    Really, despite the usual silly talk in the media abroad of Germany and the Neo-Nazi-danger here there is no way these few idiots could gain any real political power with real influence let alone getting the backing of the public in this country. The neonazi/nationalistic/faschist parties in the UK, France, Poland, Italy, Denmark, Switzerland and in other countries have far more political influence and support in the public than those in Germany.

    My Grandmother used to joke that these current Neo-Nazi-idiots would have been long-since in the camps during the Hitler dictatorship 1933-1945 just because of their untidy looks, their often drunkardlike underclass behaviour and those ridiculously shaved heads.

  33. @jez…. right……The Catalans tell the dirtbags in Madrid sent money no conditions accepted, Madrid forwards the request to Germany telling them to send money but save the lecture, saying we have our pride, please don’t patronize us just send the K*#$en money.

  34. kfc dont forget they can throw in a war as well and have the perfect prosperity , at least for sometime , followed by permanent ruin .

  35. Pingback: John Ward – ECB & Spain : Stand By For The Big-Guns Barrage – Entire ECB Exec Board Cries Off Jackson Hole – 29 August 2012 | Lucas 2012 Infos

  36. @SITC. Van Rompuy, like all the rest of them, has not heeded the lessons of history. There is no such thing as “irreversible”. Events of the past 150 years should have taught them that.
    These people can’t see past their own grandiose dreams (or should that be their master’s grandioise schemes?)

  37. Pingback: As Draghi scratches at the Spanish flea, the German flea looks East | A diary of deception and distortion

  38. It’s all back to the banks again, I have yet to see in writing why sovereign states have to bail-out the banks they host, especially when most people receive little or no benefit from them.

  39. thanks for pointing this out, so many on this leftie blog would like nothing more that to complain about “the rise of the far right”

  40. Pingback: John Ward – As Draghi Scratches At The Spanish Flea, The German Flea Look East – 29 August 2012 | Lucas 2012 Infos

  41. Pingback: Not with a bang but with a whimper | Orphans of Liberty

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