The central bank of Spain has racked up 200 billion euros of debt during the past 27 months. After four months of utter drought in the biggest bond markets, such figures indicate a liquidity problem as serious as Lehman's. Either the bonds are financed with institutional investors and monetary and fiscal policymakers or a shortage of funds could asphyxiate the global credit markets until they collapse.
At this time, sure and solvent lenders are obligated to gather resources from their clients through unorthodox means such as promissory notes, which are basically blind leaps of faith considering that with this practice interest rates suffer and yields drop.
For that reason the losses that sovereign debt can generate should be quickly defined and lenders need to be recapitalized such that doubts about their sustainability are dispelled and credit can start flowing once more.
In Spain's case, what our national bank needs could end up swelling public accounts to unsustainable levels. Europe should ignore the FMI and attend to its bank's ills. Solvency needs in one part of the Eurozone should not fester until they create liquidity crisis for everyone else. On the contrary, another post-Lehman chaos could erupt if more than one lender suddenly falls. Panic on the banks has returned and authorities should be more diligent about cleaning them up.
