Spain says it needs around 50 billion euros to recapitalize its banks, but it’s unclear where the money will come from. Mr. de Guindos said that “in the next few days, very important steps will be taken” to inject money directly into European banks – something that European authorities have so far rejected.
Spain's Central Bank said today that capital flight in March surged to 66 billion euros, double the previous record set in December 2011, before the worst of the country’s economic problems were exposed.
The Spanish government says that the remedy for the situation is not more reform but cash at affordable rates to jumpstart the economy – something that only the ECB can do. The cost of borrowing has broken records this week and is slowly climbing to the unsustainable rate of 7 percent for a 10-year government bond. The money saved by steep budget cuts is increasingly going to cover the higher cost of government borrowing and the deficit is growing. The benchmark stock index is at its lowest point for decades. And this is all likely to worsen.
Prime Minister Mariano Rajoy, who has been a willing adherent of German-led austerity, reached out to Germany and the US to press his case, privately and through the press, but there is no sign yet that the government's dangerous gamble – a full bailout is the inevitable outcome down the line if it doesn't get the money it needs now for its banks – will work out. Several officials also said Germany was receptive, but offered few details.
“Spain is threatening with seeking a bailout to force the ECB to help it recapitalize its banks in order to give its measures more time to work. That is the negotiation,” says Roberto Ruiz Scholtes, UBS strategy director of wealth management research in Spain. “It’s a poker game that could also backfire if markets end up shutting out Spain from more credit for all its other problems. Spain could end up badly hurt.”