The Rescue of Spain (part I)

The financial rescue to Spain- The rescue of Spain is prepared.

- Whose?

- Sorry. The rescue of the Bank of Spain is ready.

The moment has arrived. The Government has requested help to carry out a rescue from part of the Spanish financial sector . Europe has put up a line of credit of 100,000 million euros for the cleaning up of banks and their toxic real estate assets .

To date this is what it is, but you may wonder why a rescue is made ? How does it work ? , and finally, who and how will receive that rain of millions?

We are going to try from our humble knowledge and research to popularly explain what this is, it is two small publications.


1#. Why is there a rescue?

Do you remember in old posts that " the bank always wins "? Well, in this case it is like that again, " The bank always wins " and if it doesn't win, it ties. An important part of Spanish banking it cannot assume the loss of the value of real estate assets in its balance sheets, without going to assess the close relationship they have with the State and its Autonomous Communities.

This is the same as if a son becomes emancipated and returns home after a time with a series of debts and unemployed. His father can take him in, he is his son, but he may not have the financial capacity to help him, so he would have to ask a bank for help to help cover up his son's situation.

All this framework makes our father, the Government of Spain , come to the aid of the banks and only the banks, asking for help from Europe because financially the stability of Spain is in danger .

Previously there have been European aid to different members (Ireland, Portugal and Greece), but this time the aid or rescue itself is directed exclusively to the Spanish banking system (bad guys).

This is very nice. We have been very bad managers and very wasteful, coincidentally like other weaker countries before entering the European Community and its subsequent participation in the single Euro currency. But who is going to leave us this amount of money and under what conditions? . I'm going to tell you something, but the best thing would be not to know: they can get depressed.


2#. Where does the ransom money come from?

In Europe we have a bank (you already know that) called (it has no other logic) as the European Central Bank (ECB) . Here all the States have a bank account in which they participate and it is from this bank account where they are going to make a transfer to the Bank Restructuring Fund (FROB). Once the money has been deposited in this fund, the bank will be cleaned up according to your needs. Germany approximately (27.1%), France (20.3%) and Italy (17.9%) will be the clients that will contribute the most to our cause. Thanks friends.


3#. Who has to return the ransom money?

Well, who is it going to be ?, the people, Spain on their behalf the Government of Spain. The increase in VAT , copayment , indirect taxes, etc., are the methods that will be used to pay the country's public debt . More income and less spending, what is currently referred to as an austerity economy .


4#. What financial conditions does the Brussels loan have?

The Minister of Economy, Luis de Guindos, after requesting European aid, has commented " the loan will have very advantageous conditions for the FROB to give stability to the entities that need it ". In reality, the rescue is nothing more than a "soft loan", with an interest rate close to 3%, almost half of what Spain pays in the markets : 6.3% for a 10-year bond. One of the keys to the European loan is the term in which the State has to return it . An agreement between the Government and its European partners is still pending , although it may be around 10 years.

If these conditions are met, I think we can recognize (within reason) as a successful negotiation. The only drawback is that the bank, and only the bank , will participate in that success.

In a later post we will indicate which entities need help from the rescue fund, how much money will come to them and how this will affect our pockets so as not to saturate and depress us so much.