Forget Grexit: this is euroexit
In an amazingly cunning stunt, the Spanish Government plans to pay for Bankia’s nationalisation with its own debt…and then get Mario Draghi’s European Central Bank (ECB) to exchange this junk for cash. And throughout ClubMed, poorer citizens are dumping the banks in favour of cash, while the 3% are dumping the euro in favour of London property.
As a chap who’s fond of bailing out sovereign states with worthless paper, Mario Draghi may well find himself trumped this week by Mariano Rajoy of Spain, who (prodded by the crafty Bankia president, Jose Ignacio Goirigolzarri) has cooked up an entirely legal cash-for-sh*t exchange whereby Madrid injects €19bn of unrepayable Iberian debt into Bankia, who then send it up to Frankfurt in exchange for real spendable euros
printed by Mario’s dwarves provided under the eurozone liquidity scheme.
“This could catch on in a big way,” giggled The Slog’s baleful Fifth Columnist in Brussels, “Imagine giving someone like Venizelos this idea….he’d empty the ECB in a week”.
Joking apart, my normal contact in Madrid is already in the office this morning, and acutely aware of how this new contagion could spread very rapidly.
“I know for a fact that the Government here is considering a similar plan for some larger Cajas if this one goes through,” he confirmed, “So Draghi cannot afford to set a precedent. Rajoy is basically using the eurozone’s own rules to force the ECB into direct help for banking insitutions…but without the need for Sovereign bailouts. For now at least.”
The theory is that this will be less spooky for the bond markets buying (or rather not buying) Spanish debt. It also gives the Madrid government a way of reducing its outgoings massively without needing the markets.
The problem of course is that this is a national-centric short-term ruse that can only lead to a medium term ‘run’ on the ECB’s liquidity resources. And it leaves Draghi with two equally unpalateable alternative courses of action: to renege on his own promises and say no to the exchange; or to start printing a great deal of money.
Meanwhile, in another bizarre twist wealthy ClubMed citizens are busy exchanging cash for London property, writes Kathimerini.
Data issued by UK estate agents operating in Greece show how Greek demand for properties in London rose 39% in April — before the May 6 elections — compared to the average for the previous six months. Most house-hunters showed interest in everything worth more than £1.5M.
Greeks spent about €126m on residential purchases in London in 2011. But during April this year, demand by Spaniards was up 14%, by Portuguese 153% and by Italians 46%. And enquiries have shot up again since the proclamation of new Greek elections for June 17 – despite the euro’s plummeting value against the pound.
It’s all beginning to make me wonder if we shouldn’t see the English Channel as a sort of 21st century Berlin Wall. Certainly, in terms of people, Theresa Mayandverypossiblywon’t already sees things in that light.