Bloomberg here had the awful truth buried in an article at the end of May:
Spain has dipped into its guarantee fund, which stood at 6.6 billion euros in October, to cover loan losses for buyers of failed banks. It used the facility to inject 5.25 billion euros into Caja de Ahorros del Mediterraneo when it agreed to sell it to Banco Sabadell SA in December. The deposit-guarantee program will also reimburse the bank-rescue fund for the 953 million euros it paid for a stake in Unnim Banc, which was sold to Banco Bilbao Vizcaya Argentaria SA. (BBVA) The country had 931.2 billion euros of deposits at the end of March, according to ECB data.
In other words, in October 2011 Spain had at best only 7 billion euros guaranteeing roughly 931 billion euros in deposits. After covering the losses mentioned, Spain is down to 0.4 billion euros covering 931 billion euros.
As if that's not bad enough:
Italy’s deposit-insurance program is still unfunded, with banks pledging to contribute if and when necessary. Silvia Lazzarino De Lorenzo, a spokeswoman for Roberto Moretti, chairman of the Interbank Deposit Protection Fund, declined to comment. The country had 1.1 trillion euros of deposits at the end of March, ECB data show.
Compared to Italy which can cover nothing, and Spain which can't cover one tenth of one percent, Portugal looks like a veritable paragon of prudent planning with 0.85 percent of deposits covered:
Portugal has a deposit fund of 1.4 billion euros collected from banks through annual contributions, according to Barclays. The country’s total deposits stood at 164.7 billion euros at the end of March, according to the central bank.
John Mauldin, depending on David Kotok, here, must think that all that is really quite beside the point since the ECB funnels liquidity to the various European national banks through secretive ELA, "emergency liquidity assistance". These transfers then become debts on the books of the sovereigns, which only make their borrowing problems, and their euro area spending compliance problems, that much worse.
Notice the dramatic explosion in ELA funding by the ECB in May 2012.
Obviously, the ECB was getting ready for today's big event.
Between Greece with about 150 billion euros left in the banks and Portugal with a like amount, and Spain and Italy with about 2 trillion euros between them, the ELA backstop for the banks of those four countries represents at best about 10 percent of deposits.
It's a stop-gap measure which might work, but the euro area's problems will only continue to fester and worsen no matter what happens today in Greece.
Who knows, maybe that spat between Merkel and Hollande was just for show so that Hollande gets what he needs today in his own elections in France, after which they'll work it on out.
Hope springs eternal.
