We are not trying to belittle Greece by comparing it with a Spanish region, many countries in the world would look small next to Andalusia, however, the waves from the Greek rescue, and the discussions in the country about the fairness of the conditions imposed by the Troika, have rolled over all governments and banks in Europe and even overseas, like a tsunami.
The second rescue
Following Spain’s application and approval of a rescue package of up to 100 billion euros to plug the gaping holes in the assets of their banks, caused by the property loans, the Government was confident the markets would buy now Spanish public bonds at ‘acceptable’ interest rates. The euphoria lasted 4 hours before the markets pushed the bond interest rates to record highs. The government blamed uncertainty over the outcome of the Greek elections.
The results of the Greek elections came on Monday morning, with a majority of seats going to the two old parties responsible for the Greek drama, and signatories to the agreement with the Troika. (A Government has yet to be formed, maybe that will not be as easy as the numbers indicate). Again the dour Mr. Rajoy smiled, expecting now, at least, the markets would act more accommodatingly.
This time his hopes lasted less than 4 hours, when the Spanish country risk touched a new historic high at midday Monday, at 575 points, and even rose to 585 points before subsiding a fraction; the interest on public bonds rose above 7%, and the Ibex lost almost 3%.
It is clear Spain needs a new rescue from Europe, or the government will, in few weeks, be broke.
Bank report on 26th
The report on the Spanish banks stress test will be published on 26th of this month. We shall then see the true cost of the rotten real estate loans banks approved, how much they are really worth, and what is left of the banking sector. It will also then be clear how much of the rescue “up to 100 billion euros” is needed to refinance the banks considered “viable.”
In the meantime the Bank of Spain reports non-serviced loans by Spanish banks increased from 8.36% of the total in March to 8.72% in April. In addition to the non-serviced loans, banks have loans with risk of non-payment amounting to 152,740 million euros, 32% more than the same month in 2011 and 840% more than at the end of 2007.
Slow hara-kiri in Athens
The party that wanted to cancel the agreement with the Troika did not win in Greece, however, they were just 3% points away from doing so. Syriza, as the party is called, got 27% of the vote, up from 4.60 in the 2009 election. Greece will now have a coalition government comprising the two parties that financially drove Greece into the ditch, the conservative Nueva Democracia and the social democrat PASOK (maybe a small third party as a fig leaf).They were the parties that signed the agreement with the Troika and they have few arguments to support any changes, meaning more sufferings for the Greeks, and possibly a social uprising.
Greece is a mine floating in Europe’s financial oceans.
Moody’s downgrades 7 regions
Rating agency Moody’s has downgraded 7 Spanish regions, The Basque Country, Madrid, Galicia, Extremadura, Andalusia, Valencia and Castilla-Leon. Andalusia has gone from Baa2 to Baa3 and Valencia from Ba3 to B1.
Constitution of Bankia, fraud ?
Anti-Corruption Court judges are investigating if there was any fraud when 7 local banks merged to form Bankia. The organisation “Manos Limpios” has taken legal action against Rodrigo Rato, President of Bankia and the Ex-Governor of the Bank of Spain, Miguel Angel Fernandez Ordonez. The movement 15-M (the indignant) has raised money to bring another case against Rato.
FROB. the government agency for the Orderly Restructuring of the Banking Sector, is looking into the management of Banco de Valencia (Jose Luis Olivas and Domingo Parra).
Spain most corrupt country in Europe?
Transparency International have named Spain, together with Greece, Italy and Portugal, as having a serious lack of responsibility at public administration level, and with deep seated inefficiency, negligence and corruption. “The relationship between corruption and the financial crisis cannot be overlooked,” writes Transparency.
2 out of every 3 Spaniards think Spain is the most corrupt country in Europe, with 81% believing that the political parties are corrupt.
PP loosing voters
The latest investigation by the government agency CIS found the governing PP is losing ground and would be supported by less than 40% of voters if elections were held today, but surprisingly PSOE are not gaining new votes. The defectors are instead turning to the leftist federation IU (9%) and Rosa Diez’s UPyD (close to 8%).
Prime Minister Mariano Rajoy’s approval rating is 3.25 points on a scale to 10.
Less street cleaning in Madrid
The streets of Madrid have never been known as being the cleanest. The new mayor, Ana Botella (wife of previous Prime Minister Jose Maria Aznar) has now proposed not collecting the rubbish on Sundays and on public holidays (of which there are many), in order to save millions.
Public debt increases
The Bank of Spain reports public debt increased 13.2% in the first quarter of the year bringing total debt to 774,549 million euros, or 72.1% of Gross Domestic Product. Central Administration accounts for the largest part of the debt, with 566,263 million. Catalonia is the most indebted region, with 42,000 million euros, followed by Madrid (16,572 million) and the Valencia Region (15,373 million).
Higher taxes for tourist sector?
While in opposition, the now governing PP promised a super reduced VAT of 4% for the tourist sector. They have not kept their promise, VAT on tourism is still 8%, and now they are considering increasing the tax, to try and fill the coffers. Since the sector does no know if the increase is coming or not, or if coming when (immediately or from the beginning of 2013) tourist companies have frozen sales for next year and are only trying to fill the vacant beds for this year.
“Low cost” also feel the crisis
The “low cost” airlines carried 12.5 million passengers in the first 5 months of the year, a fall of 0.6% on last year. The traditional air carriers in Spain carried 9.7 million passengers, a reduction of 2% on last year.
Property prices down
According to the National Statistical Office, the price of dwellings fell 12.6% in the first quarter of this year, compared with same period last year; the largest fall in the history of the statistic. The property evaluator Tinsa found the fall was 11.1%.
The fall was greatest in the Basque Country, with 16.2%, Navarra, 15.6, followed by Aragon and Catalonia (both 14.9%) Baleares (14.8) and Madrid (14.2).
Pressure from EU commission
The European Commission is also demanding “greater adjustments” in price of dwellings in Spain, to try and reduce the large housing stock not selling. The Commission refers to the “property bubble” which created the surplus, and warns of the adverse effects on private consumption and financial stability.
The Commission proposes that the tax deduction on the purchase of dwellings must be removed.
Dwellings for 14,800 euros
On their web page, Casaktua.com, Banesto is offering 100, of its many thousands of unsold dwellings, for sale with an 80% reduction. They claim the properties are offered at a price of 645 euros per m2, with financing up to 100% over 40 years. An apartment in Puerto del Rosario on Fuerteventura (Las Canarias) can be had with a discount of 82% for 14,800 euros.
The crisis of the week:
The treasury has managed to place all of a bond issue, launched over 12 and 18 months, but at an interest rate for the 12 months bonds of 5.074%, up from 2.985 in previous auctions; over 18 months at an interest of 5.350%, up from 3.302 in the auction of May, a record high. The interest rate on their 10 year bonds shot up to 7.2%
As a result of the extremely high interest on Government bonds, the possibilities for other public bodies (regions, town halls) as well as private companies, to raise much needed funds on the capital markets are almost nil
The stock exchange also felt the impact from the lack of confidence in Spanish values and fell 3% on Monday, with bank shares leading the way downward. On Tuesday morning the Ibex stood at 6731 points
Rumors in the market that the EU is preparing a ‘bazooka’ of 750.000 million euro to buy Spanish and Italian bonds kept the Spanish country risk below 540 points
New Rules on P.O.Boxes
LN
The Spanish postal authorities have tweaked the rules on PO boxes ("apartados de correos"). There's a new rule that states that only a maximum of five people may use the same P.O. number and each person must also be registered to use the family box.
Thus - an initial 56.90€ to rent (good for one person) plus a further 39€ for each additional name in "alta" (photocopy of passport etc). This, readers will be pleased to note, will drop to 28.90€ for secondary names in the following year.
This is, apparently, to stop companies, rental agencies and so on, using the boxes for all their clients.
What happens if a couple have different names? - Well, explains a postal
employee, if it's married couple, we can be a bit elastic, but if it found not to be, then... after a few months, we shall be returning that mail,or destroying it?
What about Paco and Francisco?... Of course, that's the same name and Dick and Richard... or Richard Smith Esquire?
It all sounded so simple when they came up with this idea in Madrid !!!
Squatting and Illegal Home Possession
J-A S
In Today’s Spain, there is a danger of vacant dwellings being occupied by families who claim to be unemployed and to have no economic means yet appear willing to pay rent. The problem with the owners until the occupiers leave can be enormous. Sometimes, families rent an apartment for a month during the summer vacation, pay for the first month or so and then continue living there without paying again. The lack of protection for the owner is terrible. Although the law (Ley de Arrendamientos Urbanos) has changed somewhat, it can take a year until the intruder or pirate is legally evicted, of course leaving the apartment without reimbursing the owner for the many extra months of unauthorised occupation.
In some cases, they leave taking all the furniture and fittings with them. The other day I was told there are apparently, organized groups or gangs that charge people for searching for empty homes that meet a family’s needs. They find a vacant home, open the door, change the lock and ‘give the house’ to the family and then disappear. The family has a house to live in for free until such time as the owner is able to evict them and, beyond that, nothing happens.
How can one buy an apartment for rental purposes with this legal uncertainty?
I can imagine the surprise of some foreign owners on returning to Spain to find their home occupied without permission or knowledge, with nothing paid in rent and with no early chance of repossession.
The Wall Street Journal
JONATHAN HOUSE and WILLIAM KEMBLE-DIAZ wrote the following
Spain's borrowing costs jumped to a record Thursday, fanning concerns that the €100 billion ($125 billion) aid package planned for its banks won't suffice to stave off a much larger bailout for the entire country.
Spain's borrowing costs hit a new euro-era high, touching levels that forced other euro-zone countries to seek sovereign debt bailouts. Plus, Greek banks are under pressure ahead of elections. Charles Forelle discuss the outlook on Markets Hub. Photo: Bloomberg.
Spain agreed last weekend to a bank-recapitalization plan it hoped would restore investor confidence in the country's credit-worthiness. Instead, investors have continued to jettison Spanish debt amid concerns that the deal for as much as €100 billion in aid will saddle the government with more debt at a time of deepening economic malaise.
The yield on Spain's 10-year government bond ended Thursday's active trading at a euro-era record 6.931%, up from 6.184% before the deal was announced last weekend. That is worrying because foreign investors' appetite for new Spanish debt has already dried up, forcing the government to rely heavily on the country's troubled banks to refinance its debt.
Economists say the deepening dependence between the state and its beleaguered banks is unsustainable and will eventually force Spain to follow Greece—which has crucial national elections on Sunday—Portugal and Ireland in seeking a ful
"At the levels yields are now, it looks like some sort of state-level assistance is on its way," said Lyn Graham-Taylor, fixed-income strategist at Rabobank in London.
Such an outcome would likely require a commitment of several hundred billion euros, analysts said. That would push Europe's financial resources to the limit because Spain, the euro zone's fourth-largest economy, is significantly larger than any of the other countries that have needed assistance. A bailout of that magnitude would also test the euro zone's political cohesion amid growing resistance to the rescues in Germany and other northern European countries.
Euro Zone Crisis Tracker
See economic, political and markets news from across Europe as governments and financial institutions deal with the continuing debt crisis.
The high stakes in Spain have made it the focal point of the crisis. Spain will likely top the agenda at next week's meeting of the Group of 20 industrial and developing countries in Mexico. Prime Minister Mariano Rajoy may meet Monday with German Chancellor Angela Merkel, French President François Hollande and U.S. President Barack Obama, officials said.
Mr. Obama and his top economic lieutenants have held a flurry of calls with G-20 leaders in recent days, trying to build a unified message for faster and stronger action from Europe on its debt crisis.
Spanish officials, meanwhile, continued to insist they have the situation under control. "It's important to remain calm, we have a road map in terms of economic policy and measures that need to be taken," said Finance Minister Luis de Guindos, although he added that current borrowing costs aren't sustainable.
Ratings firm Moody's Investors Service undermined confidence further late Wednesday as it downgraded Spain by three notches to Baa3.
"Moody's action to place the government's one notch above speculative grade reflects the ratings agency's view that Spain has moved much closer to needing to seek direct support" from the EU's bailout funds, Moody's said.
Analysts at J.P. Morgan said a three-year lending program for the Spanish government, the country's banks and its regional government and banks would cost around €350 billion-€450 billion. That would stretch the resources of euro-zone bailout funds, which are scheduled to have just over €700 billion from July, especially if Italy, the region's third-largest economy was to need support.
In a new sign of economic distress, the decline of Spanish housing prices accelerated to an 12.6% annual rate in the first quarter, after falling 11.2% in the fourth quarter and 7.4% in the third, signaling that Spain's housing bust will continue to weigh on its economy. After falling 26% since their peak in the third quarter of 2007, many economists estimate they have to still fall around 25% before bottoming out.
Separately, Spain's central bank published data showing that average net borrowings for Spanish banks from the European Central Bank in May rose to €287.31 billion from €263.54 billion in April. As the result of the difficulties local banks faced in accessing international financial markets, Spain now accounts for around 35% of ECB lending, much more than its 20% share of the euro-zone economy.
"I think this is probably flagging some warning signs at this point.…They could pressure Spanish banks to get funding elsewhere," said BNP Paribas economist Ricardo Santos.
That would raise pressure on the Spanish government, which has come to rely on local banks using ECB funds to buy sovereign debt. According to the latest Spanish Treasury data, while foreign investors have reduced their holdings of Spanish bonds to 32% of the total in March from 36% in December, Spanish banks have raised their holdings to 41% of the total in March from 35% in December.
Still, many observers say they believe Spain has some room to maneuver. The Spanish Treasury has completed about €50 billion of its €86 billion scheduled 2012 bond issuance, and analysts believe it has around €44 billion of cash on hand. It has large bond redemptions in July and another in October, but these coincide with big seasonal inflows of tax revenue.
From Huffington post:
Borrowing costs soar in Spanish debt auction
DANIEL WOOLLS | June 19, 2012 12:47 PM EST |
MADRID — Spain found it increasingly difficult to find buyers for its debt Tuesday when it had to pay a sharply higher interest rate in an auction of short-term bonds, highlighting growing concerns that the country might eventually need foreign help to finance itself.
The Treasury raised (EURO)3.39 billion ($4.28 billion) in 12- and 18-month bills – more than its upper target of (EURO)3 billion – and while demand was robust, the borrowing costs skyrocketed. The interest rate, or yield, on the 12-month bills rose to 5.07 percent from 2.98 percent at the last such auction on May 14. The rate on the 18-month bills soared to 5.10 percent from 3.3 percent.
Marc Ostwald of Monument Securities said that while Spain met its sale target for the debt auction on Tuesday, "the yields at which these were sold can only be described as prohibitively expensive."
In the secondary market, where issued debt is traded openly, the yield on 10-year Spanish bonds remained perilously high and above the 7 percent level for much of the day. But the rate closed at 6.99 percent, down 0.13 percentage points from the previous day. Stocks finished up 2.7 percent on Madrid's main index.
Worries about Spain's ability to repay its debt grew last week when the country agreed to accept a eurozone loan of up to (EURO)100 billion to shore up its ailing banks, which are sitting on massive amounts of soured real estate investments.
The big fear is that, as the money will count as a loan and raise Spain's overall debt load, the country's financing costs will suffocate the government as it tries to wade its way through a recession and a 24.4 percent jobless rate.
If Spain is pushed into paying such high rates for short-term debt, it not only needs a eurozone rescue package for its banks but "an outright bail-out package," Ostwald said.
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Bottom of Form
"It is becoming very difficult to see how it can manage without that beyond the end of the third quarter, unless yields fall dramatically!"
Spain can survive the current high interest rates for weeks or even months, analysts say, but not in the longer term. If it becomes clear that the borrowing rates will not come back down, Spain will likely have to ask for a European bailout – money that would come at lower interest rates than those offered by bond markets. The problem is that Spain's (EURO)1.1 trillion economy is the eurozone's fourth-biggest and larger than those of bailed-out Greece, Ireland and Portugal combined.
The Spanish economy minister, attending the Group of 20 world leaders' summit in Mexico, said the country is being punished unfairly in debt markets.
"We in the government are convinced that the current situation of punishment in the markets, what we're suffering from today, doesn't correspond with the efforts, or the potential, of the Spanish economy," Luis de Guindos said Monday. "This is something that will have to be recognized in the coming days and weeks."
Spain is waiting for the two independent audits of its banks, due to be presented to the government Thursday, to determine how much of the (EURO)100 billion eurozone rescue loans Spain will tap. Investor sentiment toward Spain will in coming days depend upon the sum of loans demanded as well as any support measures announced by European leaders.
Markets were also rattled ahead of the auction by news that the second part of the audit has been delayed from late July to September.
Michael Hewson, senior market analyst at CMC Markets UK, said the rise in the Spanish 10-year bond rate this week "once again puts Europe's fourth largest economy squarely in the cross hairs as the probable next candidate for a bailout."
"Fears about growing bad debts and deposit outflows from Spanish banks have proved a toxic combination as European leaders dither on what the next steps in the crisis should be."
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