27 June 2012
Why an ESM Programme Could be a Kiss of Death
Recovery Values and Subordination
Spain, needing a bailout for its banks, was granted a vague promise by EZ leaders for up to €100 billion. The details remain obscure, yet they matter enormously. This article argues that the so-called ‘subordination effect’ of fresh official lending could put Spain on the slippery road to ruin. It argues that if sovereign bonds must be bought, this should be done in the secondary market which, would be on an equal footing with private investors and thus avoid the subordination trap.
© 2012 Centre for European Policy Studies (CEPS)
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Daniel Gros
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