This is a fun story. The finance minister of Spain gave a lecture to students at the London School of Economics. In his speech, he assured the audience that Spain does not need a bailout. Students laughed in derision.
It’s nice to see that some of the students were not fooled.
The finance minister then resorted to doubletalk.
Here was his initial statement. “Spain doesn’t need a bailout at all.” Then, in response to the students’ obvious disbelief, he explained that Madrid’s reform program would meet the standard of the European Central Bank, which would buy Spain’s bonds.
In short, the ECB will provide the bailout. Therefore, this will not be a bailout. “What we have is a proposal from the European Central Bank to trigger intervention in the secondary market with certain conditions. They have demanded that in order to intervene … they want certain conditionality.”
A bailout is when the ECB, the IMF, and the European Commission. A non-bailout is when only the ECB creates digital money to buy Spain’s IOUs.
The guy expected the audience to buy this. After all, the ECB plans to buy it: Outright Monetary Transactions.
Spain is the S in PIIGS. It wants fiscal union, because fiscal union will force German taxpayers to bail out PIIGS forever.
“Spain is going to actively support a banking union for the euro zone, a fiscal union for the euro zone,” he said. “In order for Spain to recover, it’s extremely important to dispel and to eliminate all doubts about the future of the euro.”
It got worse. People in the audience held up a banner that said “Spain for Sale.” They were protesting “austerity,” which means government budget cuts. The welfare state is going belly-up, and the people on the receiving end resent this.
Spain has 25% unemployment.
Northern European banks are holders of Spain’s IOUs. They aren’t laughing.
Today, a two-day meeting of Europe’s finance ministers begins. On the agenda: Spain’s bailout. Nothing is expected to come out of this meeting. It is preliminary to a European Council meeting on October 18.
These meetings have gone on ever since April 2010, when the new Greek government admitted that the previous government had cooked the books in order to get loans. Nothing is ever resolved.