As I first described here in late April, the Spanish bailout is looking like a bailout of Spanish banks instead of the sovereign. Spain's debt to GDP is still relatively low and so the thinking is that the sovereign debt problems there are mostly related to contingent bank liabilities. In order to sever the link between the sovereign and the banks, recapitalising the banks is key.
Yet, the recapitalisation plan has problems. The Germans did come around to the view that a bank recap via the ESM was possible. But they have agreed only to allow a pass-through via the Spanish state bank bad bank fund FROB. And that means that any funds that Spain gets for recapping their banks will add to their debt burden. In my view, this means the contingent liabilities are still there and that the probl...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.