The ECB has denied that it opposed the Spanish Government’s plan to recapitalise Bankia using Spanish government debt. It has simply issued a brief official statement to the media, explaining that the ECB has not been consulted on the Spanish (bank) recapitalisation plans. But what happened a few hours earlier is more than a little curious.
As you are no doubt aware, the move being prepared by Rajoy’s government was to inject government bonds rather than cash (which it does not have) in order to kill three birds with one stone: To bail out the bank with public support, to avoid having to sell debt on the market at exorbitant interest rates to raise the money, whilst at the same time allowing the bank itself to swap that debt for fresh cash from the ECB at 1%. And as if that weren’t enough, Bankia would invest that fresh cash received from the ECB – in exchange for government bonds – back into those very same government bonds, thus closing the circle of a perfect and colossal «Ponzi-style» scheme.
As we were saying, the ECB has issued a statement saying that it has not been consulted on the Spanish government’s plans. However, due to a «technical error», it appears that the ECB had previously sent a press release to the media in which it did indeed oppose Spain bailing out Bankia with debt securities rather than euro notes. This is the message that was sent by mistake
However the final, official statement that the ECB has sent to the media The final paragraph is missing, the one that rules out the possibility of a bond-backed bailout. What does this «error» mean? Well, it looks very much like a last-minute correction, which would mean that the door is left open for measures to be taken in the near future to ensure that the capital requirements of peripheral banks are met by money from the Eurosystem – in other words, the infamous money-printing machine that Germany keeps under lock and key. Could this be the beginning of the end? Could it be a warning to investors? Perhaps we should start looking at excellent companies trading at very low prices, although, given what might happen, it would be better if they weren’t European.