Greece's problems affect Spain
- The Ibex fell 1.5 % at the end of last week, currently below 10,400 points.
The European Commission and The International Monetary Fund have agreed a 78,000 million euro rescue package with the Portuguese Government.
Terrorist infested candidate lists accepted
The Constitutional Court has finally accepted the candidate lists presented by the Bildu coalition in the Basque Country. The coalition is clearly supported, probably also led, by the terrorist organisation ETA, and several terrorists appear on the lists. Their inclusion is endorsed by the Government, however, it is likely that PSOE may loose votes for this in the rest of the country. Research has revealed that 64% of the population, and even 70% of socialist voters, are convinced ETA is behind the Bildu list.
Buy an electric car with a subsidy
The Government is studying a plan to subsidise the purchase of electric cars. It is anticipated 20,000 buyers will be allowed up to 6,000 euros, limited to 20% of the price before taxes, off the price of such vehicles.
European residents may also claim the subsidy. If you are interested, apply at once to you car dealer, since numbers will be limited.
Economy up 0.2%
The Spanish economy grew 0.2% in the first quarter of the year. The reason for this modest increase is the recovery in other countries, especially Germany, which is stimulating the Spanish export industry. Demand within Spain is declining and
inflation rose to 3.6%.
According to Smart Currency Exchange, there is a sharp increase in the number of expat Britons who are deciding to sell up and return to UK.
23,443 small businesses closed in one year
In the year to March 2010, 23,443 'Pymes' (Spanish for small and medium businesses) ceased trading; 1.18% of the total. Especially hard hit were companies employing with between 10 and 25 workers. 7.8% of the companies which closed were in the construction sector.
99.6% of all businesses in Spain are Pymes.
S&P pessimistic about Spanish property market
In a Standard & Poor’s report on property markets in various European countries, they say, “Spain may need several years to absorb the excess of unsold dwellings.....”
Less demand for mortgages on dwellings
The Bank of Spain reports demand for mortgages fell in the first quarter, especially for the purchase of dwellings. This is partly the result of the end of fiscal incentives for such purchases, but also the lack of optimism amongst consumers.
Due to the worsening economic situation, banks and saving banks have imposed stricter conditions on granting mortgages for dwellings.
Acuňa: 2.85 million dwellings in projects
The best company for analysing the Spanish property market is without doubt Acuńa & Asociados. Their latest report shows there are 1.52 million unsold completed dwellings in Spain, in addition to at least 2.85 million which are in various stages of termination, making a total of 4 million dwellings 'in stock.' To this we would add another 1 million privately owned dwellings which owners anxiously want to sell.
Can EU support more debt?
It is already clear that Greece will not be able to repay the 110,000 million euros loan it was granted only one year ago, and leaders of the Union are now discussing a new loan of 60,000 million euros, guaranteed completely by the EU (meaning the taxpayer). Greek bonds over 2 years touched an interest rate of 26%.
At the same time, Ireland is demanding a renegotiation of the conditions for their loans, and interest rates on Portuguese bond issues have hit a record high at 12.07%.
In the latest parliamentary elections in Finland, Euro sceptics won around 20% of the vote, and it will be difficult to keep them out of the cabal for the new government. We present their point of view in the continuation below.
In Germany, the biggest payer in all the bailout schemes, opposition is growing to the huge sums to be handed over to the countries not having a grip on their economy; the same countries that over the years have collected the lion’s share of the enormous amounts handed out by Brussels.
The leader of the True Finns:
Why I Won't Support More Bailouts
By TIMO SOINI
Insolvency must be purged from Europe's system and it must be done openly
and honestly.
When I had the honour of leading the True Finn Party to electoral victory in
April, we made a solemn promise to oppose the so-called bailouts of
euro-zone member states. These bailouts are patently bad for Europe, bad for
Finland and bad for the countries that have been forced to accept them.
Europe is suffering from the economic gangrene of insolvency—both public and
private. And unless we amputate that which cannot be saved, we risk
poisoning the whole body.
The official wisdom is that Greece, Ireland and Portugal have been hit by a
liquidity crisis, so they needed a momentary infusion of capital, after
which everything would return to normal. But this official version is a lie,
one that takes the ordinary people of Europe for idiots. They deserve better
from politics and their leaders.
To understand the real nature and purpose of the bailouts, we first have to
understand who really benefits from them. Let's follow the money.
At the risk of being accused of populism, we'll begin with the obvious: It
is not the little guy that benefits. He is being milked and lied to in order
to keep the insolvent system running. He is paid less and taxed more to
provide the money needed to keep this Ponzi scheme going. Meanwhile, a kind
of deadly symbiosis has developed between politicians and banks: Our
political leaders borrow ever more money to pay off the banks, which return
the favor by lending ever-more money back to our governments, keeping the
scheme afloat.
In a true market economy, bad choices get penalized. Not here. When the
inevitable failure of over indebted euro-zone countries came to light, a
secret pact was made.
Instead of accepting losses on unsound investments—which would have led to the probable collapse and national bailout of some banks—it was decided to
transfer the losses to taxpayers via loans, guarantees and opaque constructs
such as the European Financial Stability Fund, Ireland's NAMA and a lineup
of special-purpose vehicles that make Enron look simple. Some politicians
understood this; others just panicked and did as they were told.
The money did not go to help indebted economies. It flowed through the
European Central Bank and recipient states to the coffers of big banks and
investment funds.
Further contrary to the official wisdom, the recipient states did not want
such "help," not this way. The natural option for them was to admit
insolvency and let failed private lenders, wherever they were based, eat
their losses.
That was not to be. As former Finance Minister Brian Lenihan recently
revealed, Ireland was forced to take the money. The same happened to
Portuguese Prime Minister José Sócrates, although he may be less forthcoming
than Mr. Lenihan about admitting it.
Why did the Brussels-Frankfurt extortion racket force these countries to
accept the money along with "recovery" plans that would inevitably fail?
Because they needed to please the tax-guzzling banks, which might otherwise
refuse to turn up at the next Spanish, Belgian, Italian, or even French
bond-auction.
Unfortunately for this financial and political cartel, their plan isn't
working. Already under this scheme, Greece, Ireland and Portugal are ruined.
They will never be able to save and grow fast enough to pay back the debts
with which Brussels has saddled them in the name of saving them.
And so, unpurged, the gangrene spreads. The Spanish property sector is much
bigger and more uncharted than that of Ireland. It is not just the cajas
that are in trouble. There are major Spanish banks where what lies beneath
the surface of the balance sheet may be a zombie, just as happened in
Ireland for a while. The clock is ticking, and the problem is not going
away.
Setting up the European Stability Mechanism is no solution. It would
institutionalize the system of wealth transfers from private citizens to
compromised politicians and otherwise failed bankers, creating a huge moral
hazard and destroying what remains of Europe's competitive banking
landscape.
Some defend the ESM, saying its use would always require unanimity. But the
current mess with Portugal shows that the elite in Brussels will seek to
enforce unanimity through pressure when it cannot be obtained by persuasion.
Abolishing unanimity is only a matter of time. After that we have a
full-fledged fiscal transfer union that is obviously in hock to Brussels'
anti-growth corporatism.
Fortunately, it is not too late to stop the rot. For the banks, we need
honest, serious stress tests. Stop the current politically inspired farce.
Instead, have parallel assessments done by regulators and independent groups
including stakeholders and academics. Trust, but verify.
Insolvent banks and financial institutions must be shut down, purging
insolvency from the system. We must restore the market principle of freedom
to fail.
If some banks are recapitalized with taxpayer money, taxpayers should get
ownership stakes in return, and the entire board should be kicked out. But
before any such taxpayer participation can be contemplated, it is essential
to first apply big haircuts to bondholders.
For sovereign debt, the freedom to fail is again key. Significant
restructuring is needed for genuine recovery. Yes, markets will punish
defaulting states, but they are also quick to forgive. Current plans are
destroying the real economies of Europe through elevated taxes and transfers
of wealth from ordinary families to the coffers of insolvent states and
banks. A restructuring that left a country's debt burden at a manageable
level and encouraged a return to growth-oriented policies could lead to a
swift return to international debt markets.
This is not just about economics. People feel betrayed. In Ireland, the
incoming parties to the new government promised to hold senior bondholders
responsible, but under pressure, they succumbed, leaving their voters with a
sense of democratic disenfranchisement. The elites in Brussels have said
that Finland must honour its commitments to its European partners, but
Brussels is silent on whether national politicians should honour their
commitments to their own voters. In a democracy, where we govern under the
consent of the people, power is on loan. We do what we promise, even if it
costs a dinner in Brussels, a "negative" media profile, or a seat in the
cabinet.
When in Europe's long night of 1939-45, war came to Finland with the winter
blizzards, my mother was one of eight siblings being raised on a small farm
in central Finland where my grandparents eked out a frugal living. My two
young uncles rushed to the front and were both wounded in action during
Finland's chapter of Europe's most terrible bloodshed. I was raised to know
that genocidal war must never again be visited on our continent and I came
to understand the values and principles that originally motivated the
establishment of what became the European Union.
This Europe, this vision, was one that offered the people of Finland and all
of Europe the gift of peace founded on democracy, freedom, justice and
subsidiarity. This is a Europe worth having, so it is with great distress
that I see this project being put in jeopardy by a political elite who would
sacrifice the interests of Europe's ordinary people in order to protect
certain corporate interests.
Europe may still recover from this potentially terminal disease and decline.
Insolvency must be purged from the system and it must be done openly and
honestly. That path is not easy, but it is always the right path—for
Finland, and for Europe.
(Mr. Soini is the chairman of the True Finns Party in Finland.)
Greek out of the Euro zone?
Our good and observant collaborator, Gwilym Rhys Jones, has sent us the following:
I was an advocate for and an aficionado of Professor Tim Congdon back in the 90s at Lombard Street Research think-tank and I have a recording of me on TV in a speech quoting him in 1997 as I denigrated the entire Euro concept. He advised the blessed Margaret Thatcher on economic affairs.
The only element keeping the Euro up is the belief that Germany will back it to the last man like at Stalingrad. How much longer are the German people going to put up with the bullshit that they support the entire Euro Zone?
Happy Days,
Gwilym
Dear subscribers to International Monetary Research Ltd.,
Greece is back in the headlines. The renewed risk of default, and the media hubbub about ratings agency downgrades, is to be explained by the budget deficit numbers for the first three months of the Greek state’s financial year. (If I have read the numbers properly, Greece has ten monthly accounting periods in a year, not twelve. Oh well.) In the three months January – March 2011 the deficit was 8.9b. euros, more than double the figure of 4.3b. euros in the same period in 2010. In the attached e-mail I conjecture that the budget deficit for the year as whole might be 30b. euros, compared with 18b. euros in 2010. Since Greece is in a recession and nominal GDP will be lower in 2011 than last year, the ratio of the deficit to GDP seems certain to increase dramatically, perhaps to an all-time recording approaching 20% of GDP. (By the way, Greece is in a recession because change in the quantity of M3 money has collapsed, from +15% in 2007 and early 2008 to -10% at present. Another monetary horror story.)
Greece’s ratio of public debt to GDP at the end of this year will be 160%, with no prospect of stabilization. Meanwhile the 10-year government bond yield in the last few days has been in the 15% - 16% area. Greece needs to quit the Eurozone, and to engineer a big devaluation and a large once-for-all rise in the price level to wipe out about half the real value of its public debt. (I am shocked to hear myself advocating this, but it is the correct approach. Anyone now holding Greek government bonds would be naive to believe, in all seriousness, that the situation will be rescued by a decade or two of fiscal restraint, with the Greek government paying off all its liabilities in euros of today’s real value.) Some participants in financial markets already know the full ghastliness of the latest Greek data. The challenge for Europe’s politicians in the next few months will be to retain some sort of credibility when the news gets around. Electorates will realize that the Eurozone rescue efforts of 2010 have failed and were a sham. Why was good money thrown after bad on this scale?
With best wishes
Tim Congdon
Chief Executive
The Guardian commented on the “roadshow” of Minister Pepe Blanco to sell the stock of unwanted Spanish dwellings:
A publicity roadshow aimed at encouraging foreigners to buy Spanish holiday homes has been branded "an insult" by groups of Britons caught in legal difficulties over the status and funding of their properties on the Costas.
Spanish housing minister, Beatriz Corredor, and public works minister, José Blanco, visit Britain this week at the start of a six-nation tour. The Spanish authorities said the ministers will use the roadshow to encourage individuals and institutional investors to buy some of the estimated 1m new homes lying empty in Spain.
"We must revive the holiday housing market to speed up the 'digestion of stock'," said a Spanish government spokesman, while Blanco claimed the exercise will "highlight the strengths of our economy [and] transparency and legal certainty of our planning legislation".
However, protest bodies such as the Spanish Bank Guarantees Petition and the Finca Parcs Action Group are organising online petitions calling for the roadshow to instead address long-standing grievances on the alleged refusal of Spanish banks to honour aval bancario, or bank guarantees.
Since the late 1960s, Britons buying homes off-plan from Spanish developers have been told their deposits go into third-party reserve funds set up by Spanish banks. If a developer goes bankrupt or fails to build a property the banks then refund a purchaser's deposit. But in recent years, the groups claim, many banks have allegedly refused to honour the guarantees of several thousands of British buyers.
Keith Rule, a spokesman for the campaigners, said: "Many estate agents, lawyers and banks were negligent and acted with a complete lack of professional due diligence. We, as innocent victims of the Spanish housing market, demand action and recompense."
Ruth Genda from Wymondham in Leicestershire put down a £75,000 deposit on a Spanish holiday home in 2003. Construction was delayed, but as the apartment was finally completed it was declared an "illegal build" as it didn't have formal planning permission. Genda took Banco Popular Hipotecario (BPH) to court, which declared her guarantee valid and ordered the bank to refund the purchase. But BPH appealed and the ruling was overturned.
"The case was eventually dismissed and my deposit was never returned. We believe thousands are in the same position. Where is the transparency and fairness which the government ministers now want others to believe in?" Genda said.
The Spanish government says the roadshow is a "pioneering initiative" targeting countries with national economies that are recovering from the downturn and which have historically provided many of the foreign buyers for properties on the Costas.
This week's publicity events in Britain will be followed by similar exercises in France, Germany, the Netherlands and Scandinavia, with Russia later in the year.
Michael Cashman, a Labour member of the European parliament and long-time supporter of British buyers seeking bank guarantee repayments, has written to the Spanish government. "What about those that have already invested and who have found absolutely no results through the Spanish legal system?" he asked, adding: "I would not advise any investment in Spanish property until this problem is resolved."
Si (
No(
