The Spanish government and the Bank of Spain remain in denial regarding the cost of restructuring their Banks. Their estimates remain hopelessly inadequate. They began with an estimated cost to restructure the Caja’s of €17bn. The rating agencies estimate that cost alone at between €40bn to €50bn.
Restructuring the entire banking sector to conform with the Basle 111 rules due to come into effect very soon will cost Spain €100bn according to Moody’s.
This is in addition to the huge financial aid of around €70bn the ECB has already given to Spanish Banks.
Any positive estimate for the likelihood of Spain recovering economically in the near future is premature. Its premature because in part the cost of servicing its debts represents a huge drag on the economy and will likely continue to increase.
The country is drowning in debt. The regional governments like the banks are all but bankrupt and owe billions.
I believe a financial bailout by Europe is almost and eventually inevitable.
Spain represents the bottom line when it comes to the stability of the Euro project. Any bailout for Portugal and Spain will clean out the ESF. Germany will then have to stomp up even more cash or see the whole pack of cards come tumbling down.
The principal question is will the German voters continue to support that or not? The signs are that they will not.