Contagion is Real. Does it End With Spain, really? Viva Los Rescates Financieros de los Bancos!
“A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools.”
– Douglas Adams, The Hitchhiker’s Guide to the Galaxy
Spain is too big to save and too big to fail. The only way for Spanish debt to remain at 6% is for the ECB to basically buy it (or lend to Spanish banks so they can buy it, or whatever creative new program Draghi and team can think up). When Spain goes, it is just a matter of time before we lose Italy and then, yes, even France. The line must be drawn with Spain. And the only outfit with a balance sheet big enough that can also do it in a politically acceptable manner is the ECB, and the only way they can do it is with a printing press.
Will it buy time? Yes, but time for what? To fix government deficits? To deal with bank debts? Sovereign debt? To somehow solve the massive trade imbalances between Germany and the European periphery? To force voters to accept a fiscal union? In the midst of a crisis? If there is some conspiratorial cabal that has a secret plan, they have kept it well hidden. Because from here it looks like they are making up the “plan” as they go along.
Their actual intentions are no secret. They will do whatever it takes to keep the European Union and eurozone together. And whatever it takes is a very open-ended plan. But it is going to cost them trillions of euros.
Someone is going to have to pay that bar bill. And there’s going to be one helluva hangover.
We are back to TANSTAAFL: there ain’t no such thing as a free lunch.