Week Begins With Two European Nations Asking For Bailouts
June 26, 2012 • 8:05AM

The more the bailout policy is pushed, the worse Europe's situation becomes.

As demanded, Spanish Economics Minister Luis de Guindos sent Spain's official request for a European bailout of its banks, today. But, since his letter had no details of the what, how and when of that bailout; and since the word went out that Moody's rating service would be downgrading the Spanish banks by the end of the day, "markets" crashed. At the end of the day, Moody's, indeed, downgraded 28 Spanish banks, most by 3-4 notches, London's flagship "Spanish" bank, Santander, "only" by 1 notch.

On the same day, Cyprus's Finance Minister, after Cyprus's debt was downgraded to junk by the Fitch rating agency, announced that it, too, would need a European bailout for both the banking system and their government. How much they would ask for, is left to be specified "during the next few weeks."

The reality, that no one can salvage the European banking system without a Glass-Steagall bankruptcy reorganization haunts the whole process. A report issued by the London-Brussels-based Open Europe thinkthink made the understatement of the day in warning that the bailout of Spain, currently projected at EU100 billion, might be insufficient, as "funding for the Spanish bnking sector is an incredibly fluid target," under current conditions of collapse, and the danger looms that the entire Spanish debt will have to be bailed out, and Europe might not be able to handle that! That dawned also on the old Lombardi Odier bank of Switzerland, which warned in a statement today that Germany could not bail out the whole Eurozone, even it wanted to, without bankrupting itself. "With 17 trillion of deposits and a total asset base of 34 trillion, the Eurozone banking system dwarfs the 1.2 trillion German tax base.... Yet, Germany is putting vast sums of money into the Eurozone rescue system, acting as if it can prevent the GIIPS countries (Greece, Ireland, Italy, Portugal, Spain) from defaulting," they wrote.

The sole part of the bailout policy which is "functioning," is the tightening of the austerity noose around the necks of, in this case, the Spanish people. The Spanish government's Secretary of State of Public Administration announced today that no aid will be extended to the Autonomous Communities (regions) unless they have cut their budgets for health care and education; those cuts are "indispensable."

Prime Minister Mariano Rajoy promised that his government will soon take "great, difficult decisions" on new economic measures "to end uncertainity in the markets." Judging by leaks from the Finance Ministry, they may include jacking up the "super-reduced" value-added tax (VAT) currently applied to food, books, newspapers, physical aids for the disabled, and purchases of a home in which you live, from its current 4% to the standard 18% VAT tax; and the same for the 8% "reduced" rate on transportation, sports events, hotels, restaurants, and other items, as demanded by the European Union and the IMF.