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Doing the right thing means buying as much spanish debt as needed to fix its rate. Better without withdrawing liquidity from the market.

But this means Spain will have to do whatever Germany decides it has to do. Otherwise Spain will follow Portugal fate and the ECB will stop buying bonds.

And here you have a poker game if Germany and Spain knew what they are doing.. the problem is that the crazy economic sect of uber-austerity is in the middle of the game. They may want Spain to receive a lesson, and more pain for the South and all that stuff. They could destroy the euro in theprocess.

So, the austeristas and gold-stadnard lovers will have to break one of their dremas. A pure gold-standard, since the ECB has to buy spanish debt... or just the end of the euro-gold because noone will pay the spanish bail-out.

Two years on, the only last hope of Spain is  still that it is too big to fail and the ECB must fix the spanish bond rate or the euro can go in flames...

The other option is that they try to do a Portugal to Spain... more pain for Spain.. and a bridge loan.. and then moves to the next country.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Mon Apr 11th, 2011 at 09:09:30 AM EST
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