When I Use a Word it Means Just What I Choose it to Mean, Neither More nor Less *

The German government currently sees no need for action to assist Spain from the new EU €750 billion rescue facility, according to Michael Offer the Finance Ministry spokesman. Amadeu Altafaj, a European Commission spokesman agrees. He characterized reports that a plan is being prepared mere speculation.

In Spain it is the banks that are in trouble. The Spanish property market had a bubble every bit as inflated as the United States. It has collapsed just at dramatically. Spanish banks are stocked with bad loans of their own making. The fact that they are not connected to the failure of the sub-prime market in the US does not make the problem any less severe. Spanish unemployment is 20%. The government of Prime Minister Jose Luis Zapatero has pledged to enact draconian budget austerity. IMF GDP projections show no growth until 2011; no growth means no jobs.

Spanish bond rates have continued to rise since the Greek bailout. The generic government 10-year is at 4.680%, higher than the pre-rescue peak of 4.556%.

In the Spanish economic context the two statements are typical official utterances, accurate only within the narrow confirms of the speakers intention. For Mr. Offer it is undoubtedly true that currently, there is no need for a bailout. But credit markets are looking at the Spanish prospects in future months and years; those are not current considerations. Mr. Offer's assurance means little in a credit market context. As for Mr. Altafaj's comment, speculation is of course speculative, that is, until it is fact. The idea that plans are not being prepared within the EU Commission for a possible Spanish rescue, whether for government debt or the banking system, is preposterous. Those plans are being assiduously completed as the world debates whether they will be used.

These statements, while correct in their limited meaning, are similar to the many official statements before the Greek rescue. The parallels are too obvious and to recent not to be noticed by the markets.

*Lewis Carroll, Through the Looking Glass

Joseph Trevisani Chief Market Analyst FX Solutions

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