Spain has become the fourth Eurozone member-state to fall out of the markets, and has secured a bailout from Europe - albeit unofficially. By Yanis Varoufakis.

When the Spanish Prime Minister declared that the Spanish state would save Bankia while at the same time admitting that Spain could not raise the cash to do it, two were the plausible explanations of how this feat was to be achieved.

One was that Spain would officially become the fourth Eurozone member-state to have fallen out of the markets, securing a bailout from the rest of Europe. The second explanation was that Spain would become the fourth Eurozone member-state to have fallen out of the markets, securing a bailout from the rest of Europe, without admitting that this is the case – in other words, unofficially.

Guess which of the two options Europe opted for: The second one, naturally! Indeed, why come clean when the option of subterfuge is available?

So, this is what they did: Europe allows Spain to issue fresh public debt that it passes on to Spanish banks (instead of money) in exchange for shares. Then, the banks will post this new public debt to the ECB as collateral in exchange for the cash that will keep the Spanish banks’ ATMs going. The end result will be, of course, that Spanish debt will increase and the banks will remain in a zombified state.

Compare and contrast this to what is happening (a) in Greece and Ireland (countries are officially ‘fallen’) and (b) in the case of Italian banks such as Unicredit.

In the case of Greece and Ireland, the state borrows from the EFSF in the form of both cash and EFSF-bonds. The latter is given to the banks and they count as part of the nation’s bailout loans. In the case of banks like Unicredit, the bank would issue new private debt (its own bonds), have the state guarantee it and then post these private (but publically guaranteed) bonds with the ECB in exchange for LTRO cash. What do the three cases have in common? That public debt rises as a result of borrowing either directly from the EFSF (Greece and Ireland) or indirectly from the ECB (Spain and Italy). The only other difference is that countries that are officially ‘fallen’ (Greece and Ireland and Portugal) pay higher interest rates to the EFSF than the unofficially ‘fallen’ pay to the ECB. {jathumbnailoff}

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Image top (Bankia HQ, Madrid): aditza121.