All eyes on Spain

Spain tried playing poker vs ECB using peanuts, but the strategy failed. Bankia won’t be allowed to use ECB funding via the backdoor. The Peninsula Iberica is on fire. Some further insight via Macro Business.

The news from Europe was all Spanish overnight as the country continues to struggle to find traction on any plan that will lead it away from the need for external help:

Spain backtracked on a plan to use government debt instead of cash to bail out Bankia, as Prime Minister Mariano Rajoy struggles to shore up the nation’s lenders without overburdening public finances.

An Economy Ministry spokesman said yesterday that the government was considering using an injection of treasury debt instead of cash to recapitalize BFA-Bankia, as laid out in legislation approved in February. Spanish bond yields rose and investors criticized the idea, which the spokesman, speaking anonymously under ministry policy, said today had become a “marginal” option for the 19 billion-euro ($24 billion) rescue.

The government’s push to merge banks continues with the announcement that three savings banks, Ibercaja, Liberbank and Caja3, will vote shortly on whether to combine into a single entity. The merger, if approved, would create the country’ seventh largest financial institution with a combined £96bn in assets. Obviously we’ve seen this before with Bankia, which unfortunately didn’t go to plan.

Overnight the Spanish government also announced that its joint national-regional bond issuance scheme would go live within days:

Spain’s government said it would approve the issuing of joint bonds — “hispanobonos” — by the 17 regional governments next Friday, so as to make it cheaper for them to finance their debts.

“The goal is to reduce the pressure on the regions, which is often greater than the pressure on the state in general, with some regions not able to borrow on the market,” a spokeswoman for the Economy Ministry said.

Spain’s 17 regional governments have suffered a plunge in tax revenues and soaring debt since the collapse of a decade-long property boom in 2008, and they are struggling to pay suppliers.

Moody’s Investors Service last week warned of the deficit challenges as it downgraded its credit rating for economic powerhouse Catalonia and three other regions, Murcia, Andalucia and Extremadura.

Catalonia president Artur Mas called Friday for the central government to approve the use of “hispanobonos”, which would be issued for all regions and guaranteed by the state.

Full article here.