Meanwhile, in Madrid, things have got a distinctly Irish feel. Spain's third largest bank Bankia was under pressure to raise funds, as investors saw it was too risky. The State stepped in, taking a 45% stake. "The Bank of Spain said Bankia and BFA, its parent company, had informed it that the conversion of €4.47bn of state aid in the bank into ordinary shares was "the most advisable option for strengthening the [bank's] financial soundness"." OK, now where have we heard that before?
Well, way back in December 2008, the Irish Government decided to take a 75% stake in the country's third largest bank, Anglo Irish Bank, which was under pressure to raise funds. "Dublin “will continue to reinforce the position of Anglo Irish and will make further capital available if required so that it remains a sound and viable institution,” the finance ministry said," injecting €1.5bn into the institution.
What happened next? Well, in Spain, Olli Rehn declared that the Spanish plan to manage the Bankia problem should dispel any doubts about the "stability of the Spanish banking sector." In Ireland, the Commission approved the Irish government plan to recapitalise Anglo on January 14th 2009, but two days later, Finance Minister Brian Lenihan dropped another bombshell: "A €1.5bn (£1.34bn) recapitalisation package unveiled after a loan scandal at Anglo Irish is "not now the appropriate and effective means to secure its continued viability" and a full-scale nationalisation will be initiated," he said. The hole was effectively too big for a partial nationalisation. In Spain, there remains some uncertainty about the shortfall in Bankia. As it was an amalgamation of lots of banks, hurriedly scooped together and floated in 2011, one suspects that there was some hope that any holes could be socialised across the new group. In truth, no one really knows how deep the hole is in the Spanish Banking Sector. Which was just like Ireland - the bank debt seemed manageable, but then got bigger, and bigger.
Today, Spanish Prime Minister Rajoy warned that Spain faced exile from the bond markets. Ireland decided to withdraw from the bond markets in September 2010. Ireland's decision was not theirs to make - they were priced out of the market, in the same way that the current trajectory of bond yields for Spanish sovereign debt is threatening to exclude Spain. The banking system goes first. Private credit to the private banks becomes unattainable at reasonable rates, and so the government has to step in in order to prevent a banking sector collapse. That nationalises an indeterminable amount of debt, or at least exposes the sovereign to the debt. This is where Spain is now. This is where Ireland found itself in early 2009. We limped along for another eighteen months as the astonishing reality crept upon us, revelation by revelation, in one bank, then two, then three, then the systemic and cultural issues became evident. Spain won't get 18 months, the markets are wise to the pattern.
Well, way back in December 2008, the Irish Government decided to take a 75% stake in the country's third largest bank, Anglo Irish Bank, which was under pressure to raise funds. "Dublin “will continue to reinforce the position of Anglo Irish and will make further capital available if required so that it remains a sound and viable institution,” the finance ministry said," injecting €1.5bn into the institution.
What happened next? Well, in Spain, Olli Rehn declared that the Spanish plan to manage the Bankia problem should dispel any doubts about the "stability of the Spanish banking sector." In Ireland, the Commission approved the Irish government plan to recapitalise Anglo on January 14th 2009, but two days later, Finance Minister Brian Lenihan dropped another bombshell: "A €1.5bn (£1.34bn) recapitalisation package unveiled after a loan scandal at Anglo Irish is "not now the appropriate and effective means to secure its continued viability" and a full-scale nationalisation will be initiated," he said. The hole was effectively too big for a partial nationalisation. In Spain, there remains some uncertainty about the shortfall in Bankia. As it was an amalgamation of lots of banks, hurriedly scooped together and floated in 2011, one suspects that there was some hope that any holes could be socialised across the new group. In truth, no one really knows how deep the hole is in the Spanish Banking Sector. Which was just like Ireland - the bank debt seemed manageable, but then got bigger, and bigger.
Today, Spanish Prime Minister Rajoy warned that Spain faced exile from the bond markets. Ireland decided to withdraw from the bond markets in September 2010. Ireland's decision was not theirs to make - they were priced out of the market, in the same way that the current trajectory of bond yields for Spanish sovereign debt is threatening to exclude Spain. The banking system goes first. Private credit to the private banks becomes unattainable at reasonable rates, and so the government has to step in in order to prevent a banking sector collapse. That nationalises an indeterminable amount of debt, or at least exposes the sovereign to the debt. This is where Spain is now. This is where Ireland found itself in early 2009. We limped along for another eighteen months as the astonishing reality crept upon us, revelation by revelation, in one bank, then two, then three, then the systemic and cultural issues became evident. Spain won't get 18 months, the markets are wise to the pattern.
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