Same game, different rules ?

T+3 Spanish bail-out, emergency rescue, credit-line and we are back to square 1 if Spanish yields are an indicator. Apparently markets are not convinced about the credibility of the fire wall currently put into place ; or are awaiting more clarity and reassurances, something the so-called master plan might eventually provide end of this month. Spain nevertheless got a fairly good deal. And the fact that others didn't could add more pressure on politics.

The Spanish deal involves 100 bio EUR to support the banking system. It will be channeled through the state's bank rescue fund FROB and from there extended to banks in need of the money. According to the bank of Spain, Spanish banks have exposure to problematic real estate assets "worth" 184 bio eur. There are however still some uncertainties surrounding the deal. For instance, depending on where the money will come from - EFSF or EFSM - there is the question of insurance demand by some EMU members providing the credit. Finland for example will demand collateral for the loans if they come from EFSF (temporary fund) rather than from ESM (permanent - loans senior to other debt). And there is of course some criticism on the conditionality terms linked to the credit facility.

Although not confirmed yet, it seems that Spain will pay 3% interest on the loans :

"The terms of the rescue are very favorable relative to borrowing cost in the market" Luis De Guindos, Spanish Economy Minister

Furthermore, after it recently received a better deal in terms of budget targets to be achieved in the medium term, there are no extra commitments required in this field from the Spanish government. Spain's current budget deficit amounts almost 9% of GDP. The 100 bio EUR is equivalent of 10% of GDP, raising the debt number towards 80% of GDP. No panic levels yet but we are getting close at the current pace.

Now let's turn back the clock to the start of the financial crisis. Ireland was the first country to come under fire in this on going sovereign debt crisis saga. And the country took a huge hit at the request of the Troika. It nationalized 5 of its 6 largest banks and repaid senior bond holders at the request of the ECB. For example, the Irish state committed 35 bio eur to rescue Anglo-Irish, currently named Irish Bank Resolution Corp. The state issued 30 bio eur promissory notes in 2010, which the bank uses as collateral for emergency funding from the central bank. That commits the government to repay about 3,1 bio EUR on a yearly basis for a decade or 2 and that's not small change when looking at the size and current state of the Irish economy. And Ireland has been shut off from market access with current funding conditions similar to the Spanish ones (7,2 Irish market average vs Spain 6,7% 10y)

So the Irish could have a point when looking at what they did in those days and at what they have already implemented in terms of austerity (no small measures either), all forced by higher hand and/or achieved very swiftly by domestic politics. And hence it should not come as a surprise that we come across the following comments coming from out of Dublin :

"In order to protect the financial system, we took a huge hit and we want recognition for that" Energy Minister Rabbitte

"Any latitude offered to Spain should be available to all members" Irish PM Kenny, who is pressing for changes to the ESM (bail-out fund) which currently is not allowed to channel aid directly to banks

'"We are perversely hoping for a further worsening of the situation in other countries in a political bid to progress our own cause. If we are patient, we could get some kind of deal, perhaps around extending the current repayment schedule for the Anglo Irish promissory notes" synopsis Dublin market comment

As far as core Europe is concerned, the Irish case is not on the menu for renegotiating : "The Irish program is working in an exemplary fashion. One always has to ask what it means when you change something, which signals does it send ? With that in mind, we don't see a need for change" German Finance Minster Kotthaus. Or to put it more bluntly : Keep up the good work - and put a sock in it !

Tomorrow, Spain will play Ireland. And they are probably no real challenge to Xavi, Inesta and Fabregas; But just as was the case with their encounter with Croatia, they will put on a brave fight, no matter how naive the strategy. And for that, they deserve a price for courage and fair play.