2012-03-06

Spain will not tilt at windmills

Spain's sovereign thunderclap and the end of Merkel's Europe
The Spanish rebellion has begun, sooner and more dramatically than I expected.

As many readers will already have seen, Premier Mariano Rajoy has refused point blank to comply with the austerity demands of the European Commission and the European Council (hijacked by Merkozy).

Taking what he called a "sovereign decision", he simply announced that he intends to ignore the EU deficit target of 4.4pc of GDP for this year, setting his own target of 5.8pc instead (down from 8.5pc in 2011).

In the twenty years or so that I have been following EU affairs closely, I cannot remember such a bold and open act of defiance by any state. Usually such matters are fudged. Countries stretch the line, but do not actually cross it.
One day after the Netherlands released a research report showing an exit from the euro would benefit Holland (though they would likely stay in some type of de facto currency union with Germany, such as a peg) and the Freedom Party called for a referendum on an exit from the euro, Spain grabs the mantle of leading anti-EU government. Spain's refusal to play ball is not just coming from the top, there's wider support for the move. Consider the following comments in the context of negative social mood:
What is striking is the wave of support for Mr Rajoy from the Spanish commentariat.

This one from Pablo Sebastián left me speechless.

My loose translation:

"Spain isn’t any old country that will allow itself to be humiliated by the German Chancellor."

"The behaviour of the European Commission towards Spain over recent days has been infamous and exceeds their treaty powers… these Eurocrats think they are the owners and masters of Spain."

"Spain and other nations in the EU are sick and tired of Chancellor Merkel’s meddling and Germany’s usurpation – with the help of Sarkozy’s France and their pretended "executive presidency" that does not in fact exist in EU treaties."

"Rajoy must not retreat one inch. The stakes are high and the country is in no mood to suffer humiliations from a Chancellor who is amassing all the savings of Europe and won’t listen to anybody, as if she were the absolute ruler of the Union. Merkel and the Commission should think hard before putting their hand into the sovereignty of this country – or any other – because it will be burned."
This is all coming out as Greece needs another bailout in the coming week and the bondholders are starting to object.

More PSI Troubles: Greek Swiss Franc Bondholders Organize, Will Hold Out
Confirming that the angst 3 days ahead of the Greek PSI deadline is very warranted, we learn that Bingham, which as we noted previously has so far identified and organized a significant group of local law bondholders potentially sufficient to derail the transaction, has now also organized a blocking group of Greek bondholders, this time those holding the country's outstanding Swiss Franc bonds.

From Bloomberg: "Investors in Greece’s Swiss franc bonds have formed a group to fight for their rights as the country seeks to pare about 106 billion euros ($139 billion) of debt as part of an international bailout. The group is concerned by the terms of the restructuring and is “exploring means to address its concerns and to protect the rights of holders of the bonds,” according to a statement from their legal adviser Bingham McCutchen LLP in New York. The group holds the 650 million Swiss francs ($708 million) of 2.125 percent notes due 2013."
The next week could be wild.

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