Reblogged: Debt Aggregation Follow-Up

[ScottP]

Debt Aggregation Follow-Up:

My first “vectors” feature on debt aggregation featured the story of Spain’s debt aggregation landscape.  Today two stories have emerged to complement Spain’s debt aggregation narrative.

First, from Zero Hedge:

Valencia Announces SOS, Needs To Tap Government LIquidity Support Just Eurogroup Accepts Spanish Bailout Plan

Spain’s heavily indebted eastern region of Valencia said on Friday it would apply for help under the government’s 18 billion euro plan passed on Thursday aimed at helping regional finances.

This, just shortly on the heels of a Spanish bank rescue announcement, from Bloomberg:

Euro Finance Chiefs Give Final Approval to Spain Bank Rescue

Euro-area finance ministers gave final approval to as much as 100 billion euros ($122 billion) of bank aid for Spain, putting Greece back on the front line of the bloc’s crisis-fighting agenda.

Note that the “bank aid” is a loan, via the EFSF mechanism.  This is the essence of debt aggregation: with national “too big to fail” institutions given cheap money permitted by international collusion to keep them afloat.”

For the foreseeable future, Europe’s leaders will use debt aggregation to “kick the can down the road.”  It never ceases to amaze me that this works to assuage the financial markets, and how well it “works” to keep the economy going, but piling more debt onto already un-payable debt leads to only one place: default.    In a coming update, I’ll try to predict when that is going to happen, by dissecting Germany’s untenable position in the Eurozone from a historical perspective.

Original entry: See link at top of this post