The terms of Spain's bank bailout are being finalized and this draft memorandum is a near final verison that lists the timeline and details of how this bailout would be conducted. While the draft looks rather comprehensive on first glance and does have several positive elements, it is also afflicted by a number of glaring omissions.
The first of these is that the memorandum fails to understand or acknowledge the link between the macroeconomic policies being pursued by Spain, for example on cutting its fiscal deficit, and the stability of the financial sector. In fact, many of the new austerity measures adopted by Spain will undermine the objectives of its bank bailout program. It also fails on take note of the social and political realities. Crucially, it makes no reference whatsover to the direct injection of equity by the European crisis funds, now or in the future.
“The Euro Area crisis has turned systemic and no sovereign or financial institution is immune to getting sucked in. The worsening problems in Greece are increasing the likelihood of a collapse of the deal agreed just in July and the large aggregate exposures of EU banks to Italian and Spanish sovereign debt have put a question mark over the solvency of individual banks as well as the EU banking system as long as these countries don’t have access to refinancing at reasonable costs. In addition near term growths prospects have collapsed increasing the likelihood of losses on assets and lowering expected profits.”