Daily commentary: On the Spanish bank bailouts

In the links today are a lot of links in both English and Spanish about the bailout of Spain's fourth largest bank Bankia. With the partial nationalisation, Spain is moving one step closer to Ireland in committing the sovereign government to bank liabilities that have the potential to greatly increase sovereign debt. If you look at Spanish sovereign metrics, the deficit is high but the debt to GDP level is still relatively low despite the crisis because it started from a low base. The real problem in Spain is private debt and the insolvency of the banking system.

There are a lot of views as to what Spain should do to deal with their problem. The conventional view is that Spain should move in the same direction that Ireland has and support the banking system. Doing so will likely cause s...


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