How long before markets realize there is no Spain solution?

Spain is in big debts and seeks financial aid from the EU.

The primary factor preventing a massive selloff last week was the hope for official intervention, but the ECB and Fed disappointed.

Markets were left clinging to hope that the EU could stabilize Spain’s banks before the June 17 Greek elections.
It’s still unknown how much Spain will get and under which conditions, and Spain has a list of customary conditions for loans that it wants waived.

Unfortunately, there is no funding lined up for any of the maximum 100 billion euros Spain will request.

Everyone agrees that the funding for the rescue should come from the ESM (European Stability Mechanism) and/or the EFSF (European Financial Stability Facility).

The treaty creating the ESM specifically says that the fund can only lend to governments (and not banks) in exchange for promises of reforms.

The German government insisted on numerous occasions that this passage of the treaty should be respected.
Spain does not want many obligations attached to the loan and demands the following: no loss of sovereignty, no new fiscal conditions, no new deficit commitment, no additional structural reforms and no IMF supervision.

The fact is that even if we get past that disagreement, the ESM treaty has yet to be approved by most governments, including Germany. Therefore, ESM doesn’t seem like it could help.
As for the EFSF, it has about 200 billion euros, including the now questionable 93 billion that is due from Spain.

That leaves about 100 billion euros, assuming that the EU would agree to empty the EFSF at this time.

If it did, how would markets react to news that the EU bailout funds are currently empty?

That news alone could be enough to spark panic.
There is no clear funding source for Spain, Greece is on the edge of the abyss, and the rest of the GIIPS is not far behind, should credit markets freeze up.

So wForex Earn Easy Moneyhere will the money come from?

It isn’t likely to come from the US in an election year.

That leaves a possible solution of ECB money printing.

Would Germany agree to stay in a currency union with the euro at risk of dilution?

Even if all the above obstacles are overcome, holders of Spanish and Italian bonds must face the growing risk that precedent of the last Greek bailout will be applied to them:

A forced haircut and having their claims made junior to those of the ECB.

 

That alone could mean Italy needs aid, for which there is no funding available.

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