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This is exactly what Rajoy & Co. were trying to avoid by maneuvering for the bailout to be given direct to Spanish banks, not to the Spanish government. And not, specifically, from the IMF, which has first claim in case of default, and is feared for its tough stance on Spain's preferred style of brainless banking.

Naturally, EU Finance ministers would have none of it. The money will be paid to the government, and the ESM will have first dibs in case of default.

Thus shafting all other prospective Spanish sovereign bondholders.

'The cheers for the Spanish bailout lasted just hours—by the end of the trading day any euphoria had evaporated and was replaced by gloom. That suggests Europe is quickly running out of time to find a bolder fix for the sovereign-debt crisis.'

'Investors fled from Spanish government debt on Monday, an immediate rejection of the country's planned bank bailout by the constituency it most desperately needs to impress: the buyers of its own government bonds. '

'One of the euro zone's two bailout funds, the European Stability Mechanism, is considered a "senior" creditor by European authorities, and it is meant to be paid back first if Spain defaults on its debts.

That means investors who might buy Spanish bonds now risk being behind the ESM if Spain can't repay.'

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