Why the Spanish bailout may be to recap the banks instead of sovereign

The weekly is on Spain again. Ever since Willem Buiter mentioned the probability of a Spanish bailout some time in 2012, speculation has been rife about a Spanish bailout. In this column I argue that Spain is still too big to bail and that any bailout for Spain must therefore be of Spanish banks and not the Spanish sovereign.

I am going to make this a quick hit this week. Let me start out by pointing out that I certainly think Spain is a problem. See Spain is in big trouble and There will be more defaults in the eurozone for background. As I have said repeatedly, the problem for Spain is the cajas, the savings banks in Spain. They are undercapitalised and dependent on ECB liquidity for funding. From a sovereign perspective, Spain looks better on debts than France and Germany as well as ...

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