A month ago Europe bailed out Spanish banks but left Spain on the hook for the full $125 billion loan. Since there was immediate concern Spain might default on the debt, and that the new debt was senior to all private debt, private investors ran from Spanish bonds and Spanish borrowing costs spiked. Now Europe will just give Spain the money but with no strings, and hope for the best.
Tag Archives: Spanish default
Zombie Banks
Spanish bond yields are up again as the short term benefits of the ECBs massive, easy-money lending program (LTRO) dissipate, and the reality of a recession in Euroland sets in. Making things worse, some European banks used the cheap 1% LTRO money to buy lots of Spanish sovereign debt yielding 5%. As a result, if Spain falters, it will lead to lots of zombie banks that lend stupidly.