Spain’s Fund for Orderly Bank Restructuring (FROB) will receive up to €100 billion, so they tell us. President Mariano Rajoy has referred to this intervention as “good news”; apparently the Salvador Dali school of Spanish conservatism is still going strong. Given that our government continues to systematically deny reality, it is tempting to follow them into the abyss of the surreal. But I must disappoint. This entry will not deal with melting clocks, Perpignan train station, ants, or masturbators: Spain is due for a visit from the men in black suits, not from the men in white coats.
It has become impolite to mention that the FROB was designed so that it could be leveraged to the tune of €90 billion, thanks to the “explicit, unconditional and irrevocable guarantee of the Kingdom of Spain”. Having admitted the need for external financing, this guarantee is now just worth the paper it’s written on. Directly propping up Spain’s zombie financial sector would have sunk the sovereign.
The old FROB guarantee has now been replaced by an EFSF-ESM guarantee. This convoluted (by design) financial architecture should not distract us from the central fact: public money will be used to absorb private losses. The old FROB guarantee has not gone away. Indeed, the Spanish Constitution was modified (thanks to some ECB blackmail back in August) so that paying interest on the public debt is the “absolute priority” of the Spanish state. The Spanish citizen will still be made to pay, but the agony will be drawn out.
We are witnessing a twisted version Keynes’ suggestion that we bury bottles filled with banknotes in disused coal mines. Instead, money will be thrown down a bottomless pit called the Spanish financial sector. So long as the economy continues to contract and jobs continue to be destroyed, more and more households will be unable to afford their mortgage payments and balance sheets will continue to deteriorate. Of course, we will now be asked to tighten our belts in order to prop up the banks – otherwise it wouldn’t be a proper downward spiral.
The unfolding social tragedy will only get worse. Further cuts to spending on health and education are programmed. The European Commission suggests raising the VAT and cutting pension benefits. It won’t be long before it turns its hungry gaze on the benefits for the long-term unemployed.
When the Troika starts bullying states as though they were developing countries, it doesn’t take long for these states to revert to Third World conditions. They made a desert and called it a bailout.
Yanis Varoufakis wrote a great post on the Spanish bailout, citing Lorca. I think Garcia Marquez is a better fit for the magical realism of the Spanish government: this is a Chronicle of a Death Foretold.
 100 billion is obviously a very scientific figure, reminiscent of this classic piece from The Onion.