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Weekly Report (14.09.12)

By Per Svensson

miércoles 22 de octubre de 2014, 11:21h

Reversed pressure hits Spain

Last week Spain was among the many countries pressurising the European Central Bank to start buying debts from countries with problems. This week Spain is being pressured by many countries, institutions, and commentators to use the debt-buying instrument agreed at the end of last week, by admitting its need for a rescue.

Rajoy is stalling, claiming Spain must first study the conditions for a rescue, and that he will not take the decision before the meeting of the European Council on 18th and 19th October.

Spain world champion – in unemployment

The International Labour Organisation reveals that of 178 countries investigated, Spain has the highest official unemployment rate which, at the end of September was 25%, with 50% of its young people jobless.

Catalonia claims for independence

Between 1 and 2 million people took to the streets of Barcelona on Tuesday to demand independence from Spain. The movement for independence has been fuelled by the economic crisis.  Catalonia has already applied for a 5 billion rescue from the national government.  The Catalans insist they have paid 3 times that in taxes to the rest of Spain.

US casino to Madrid

The American company, Las Vegas Sands Corp, after being offered extensive tracts of public land and granted important tax advantages by the regional government,  has decided to site its European casino centre in Madrid. The company, suspected of having connections with the Mexican and Chinese mafia, has promised an investment of 17,000 million euros and 260,000 new jobs…….

One level headed politician called the project a ‘centre for ludopatas (compulsive gamblers) with black money’.

Benidorm twin towers illegal

The Supreme Court declared in July the twin towers which are being constructing on the water’s edge in Benidorm by Edificasiones Calpe, the Ballester Group in Valencia, are illegal. The company has asked for a clarification of the sentence and saying they will take the case to the Constitutional Courts and if necessary to the European Courts in Strasburg.

The leader of the leftist party Compromis, said ‘The judge has decided and the

‘Algarrobíco valenciano’ must disappear for the good of all citizens and the recovery

f our coast.’

The present mayor of Benidorm, Gema Amor, has doubts, ‘that any mayor would

dare to demolish the towers.’

Ireland starts the bulldozers

NAMA, the ‘bad bank’ of Ireland, has started to bulldoze the surplus of unsold real

estate from the property bubble which burst in 2008, leading to an economic

collapse and the subsequent rescue of the country.

Last week an apartment block 72 kilometres outside Dublin was demolished by NAMA (National Asset Management Agency)   The agency has a further 128 property projects on its list.

The newspaper Expansion asked its readers if Spain should follow the example of Ireland. 64.5% answered yes.

Hard times for poor bankers

The Government has reduced the maximum salary of Bank Directors to meagre 500,000 where the bank has received state support to survive. This is the second restriction on salary for those who have led many of the Spanish financial institutions into the ditch, following the previous maximum of 600,000 euros introduced in February.

More dwellings – less value

The number of dwellings in Spain has exceeded 26 million. That is one per every second inhabitant.  Nevertheless, in spite of the  impressive increase, the total value of all dwellings has dropped from 5.3 billion euros in 2008, to 4.9 billion in 2010; a fall of 9.2% in just 2 years.

False statistics  from Ministry

The Ministry of Development is feeding us false and misleading statistics on the sale of properties. It reports that the number of dwellings sold in the second quarter of this year reached 80,235, or just 11.6% less than in the same period last year.

Careful! The number of transactions reported by the Ministry refers to the ones registered in the Property Registries. Anyone with any knowledge of the Spanish property market will know, as we have reported several times, that a private sales contract may be registered years after it has been signed. Moreover, transfers of properties from promoters to banks, and even changes due to non-payment of mortgages, are included in the figures.

The crisis of the week…..

….. is taking a lull while Rajoy is pulling the last petals off the flower: Shall, shall not …..

The Ibex rose from 7,400 to almost 8.000 on Wednesday morning

The country risk fell almost 100 points to 413

The Sabadell/CAM bank has told the trade unions that it intend to reduce the workforce in the CAM branch offices by 1,773 employees

The Troika has refused the Greek Prime Minister Samaras’ plan to save at least 11,600 million euros in the coming 2 year.  Without an approved plan, Greece will not receive the next instalment from the rescue plan, some 31,500 million

From January to June this year, the Valencia Region paid 562 million euro in interests and financing costs, instead of the planned 578 million for the whole of 2012

On Wednesday morning, the Judges of the German Constitutional Court published their finding on the legality of German participation in the extended European rescue fund ESM.  37,000 citizens had signed a petition asking that the ESM should be ruled unconstitutional, a position shared by the majority of Germans

The Judges ruled that participation in the ESM is constitutional,wth the conditions that Germany’s liability does not surpass 190 billion euro and that the German parliament (Bundestag) must be a part of the decision taking process.

 

THE PURCHASE OF BONDS BY E.C.B.

A Greek gift for Rajoy

By Per Svensson

Mariano Rajoy’s  overriding aim during his 9 months as Spain’s Prime Minister, has been to save the nation’s pride. The country, that only 5 years ago considered itself the world’s 8th biggest economic power , must not be dragged down to the level of a ‘beggar nation.’   Or at least, it must not be seen to be at that level. That was the reason Spain insisted the necessary financial assistance to the mismanaged banks must not be construed as a Spanish rescue, but only a rescue of the Spanish banks.

Since then Rajoy has twisted before the urgent necessity for a full blown rescue of the shambling Spanish finances, coming up with several proposals how Northern Europe could spend their tax income on supporting Spain, without it being called a rescue.  Recently he has been calling for the European Central Bank to buy, without limits and conditions, the bonds issued by Spain which the markets would only buy at very high interest rates.

Now he has got the gift he asked for, the Central Bank has decided to buy public bonds from Spain and other countries without limit.

But the gift does not come without conditions, the most important one being that the countries wanting this assistance must ask for it, making it a rescue operation.  Secondly, the purchase of the bonds will only apply to those countries which accept a number of strict conditions (what this can mean we have seen in Greece).

 

The Markets reacting

Even before the meeting of the Board of the Central Bank where the proposals of President Mario Draghi were approved (against one important vote – that of Germany)  the markets started to react, with the interest rate on Spanish bonds and the country risk falling, and share values on the Ibex rising strongly. This trend continued after the decisions were made public.

So far, so good, but the euphoria amongst investors and speculators will

only last as long as the prospect of massive purchases by the central bank (including the conditions) is being accepted by the Spanish government.  Should Rajoy refuse to accept any part, all the world will see what it really is: a financial rescue of Spain, and the bubble will burst.

The Vice-President of the employers union, CEOE, has reminded Rajoy that ’Spain is a country almost in suspension of payments, and when a company is in a bad situation, the alternative is to ask for assistance, and the petition for a rescue from the Euro Zone should be taken as soon as possible because time is running out…’

However, there are important elections in Spain next month, in Galicia the regional PP government is fighting for re-election, the same as the PSOE-led government in the unruly Basque Country. Rajoy would dearly wish to see those elections concluded before asking for a rescue.

Rajoy is between a rock and a hard place. If he refuses the conditions of the rescue, or delays too long, the interest rates on public bonds as well as the country risk will go through the roof again, and Spain in a short time be without funds to pay its bills.

If he accepts the rescue in the form offered, the strict conditions attached and the presence of the ‘men in black’ in the Government offices, he may be swept out of Government at next elections.

Cuts in the democracy

I am not greatly in favour of the inflated Spanish Administration of Spain, with separate Parliaments and Ministries for each of the 16 regions. It has led to exploding expenses, a jungle of bureaucracy and considerable corruption.  It needs to be slimmed down.

But the proposal which the reactionary Secretary General of the PP, Maria Dolores Cospedal (she is also the president of the region Castilla – La Mancha) has launched and had approved by the regional parliament, is a direct attack on the democracy of the country: That the deputies in the regional parliament shall not receive a fixed salary for their work.

This will lead to only wealthy people being able to stand as candidates for parliament, or those who have already sold their vote to private interests. It would be better for Mrs. Cospedal to give up some of her own income;  3 public salaries, totalling 168,000 euros.  She is living in a 600 m2 house in the Province of Toledo on 12,000 m2 of land. The property has a value of 2.3 million euros.  Mrs. Cospedal also has an apartment of 143 m2 in Albacete and another in Madrid of 265 m2……..

 

Self-Employment in Spain
Lenox Napier

It’s not easy being one of Spain’s 3,057,000 self-employed workers, known in Spanish as ‘autónomos’. First of all, you have to work hard at whatever you do, which is often peace-work, freelance or part-time. Besides collecting IVA which you must pay quarterly to the Tax office (regardless of when you are paid by your clients), you will have to pay your social security cotización at month’s end (a chunk of cash which starts at around 300 euros). This monthly payment goes towards your health and eventual pension only and you will pay more if you expect to reap unemployment benefits when things are hard and, as for your eventual pension, Spanish law says that you only receive a monthly cheque after a minimum of fifteen years work. To make things worse, from this month, any late payment will mean a 20% additional levy. ‘Retenciones’, withholding tax, have also been raised to 21%. It’s hard working in Spain and, as some wag told me yesterday, no one who wants to become wealthy here ever gets a job.

EURO GOVT-Spanish debt leads ECB-inspired peripheral rally

By William James

LONDON, Sept 7 (Reuters) - Spanish 10-year bond yields fell below 6 percent for the first time since May on Friday as an ECB plan to buy government debt was seen as a first step towards restoring faith in the euro zone's ability to tackle its debt crisis.

European Central Bank chief Mario Draghi on Thursday committed the bank to potentially unlimited buying of bonds with maturities of up to three years, albeit with tight conditions, i n a landmark step toward addressing the crisis, which is threatening Spain's ability to fund itself.

Spanish 10-year yields fell the furthest on Friday and were last at 5.76 percent, down 32 basis points, having fallen from more than 7.5 percent in July.

Yields on two-year Spanish bonds, within the scope of the ECB plan, fell by 6 bps to 3.00 percent with traders saying they had limited room left to rally, having already tumbled from around 7 percent over the last six weeks.

"It's driving confidence through the market. You see the rally extending to longer maturities whereas in previous times the rally was concentrated on the short end," said Alessandro Giansanti, strategist at ING in Amsterdam.

Previous attempts to solve the crisis by buying bonds or pumping banks full of cheap cash had limited impact on longer-dated debt as investors remained sceptical, but the scale of the ECB's latest commitment has fuelled greater optimism.

Italian, Portuguese and Irish bond yields also fell, and the greater appetite for risk, and higher returns, saw French and Belgian debt outperform German Bunds - the region's lowest-yielding, least-risky assets.

Nevertheless, whether those gains can be sustained in the medium term will be the true measure of the plan's success.

The ECB tied strict terms to any future bond purchases, meaning Spain would have to agree to conditions with the European rescue fund before bond buying could begin.

Spanish Prime Minister Mariano Rajoy appeared in no rush to seek a bailout on Thursday, potentially leaving markets in limbo and denting the positive mood.

"There's a lot in the price and Spain and Italy show no signs of asking for help - so how does that work?" a trader said.

Euro crisis to worsen; Greece could exit euro: Sweden's Borg

September 09, 2012

 The eurozone crisis will get worse before it gets better and Greece could exit the single currency bloc within a year, Swedish Finance Minister Anders Borg said in an interview on Saturday. "I don't think we've seen the worst yet in countries like Spain and Greece. They have such serious problems that Europe is going to be in a very difficult position during the next six to 12 months," Borg told public broadcaster Swedish Radio.

The Swedish finance minister, whose country is not a member of the eurozone, said he would not be surprised if Athens had to leave the 17-member euro bloc in the foreseeable future. He stressed that while there was "much support" for the country in Europe, "we can't rule out the possibility that Greece will end up in a situation where it in practice leaves the euro in six, nine or 12 months." Borg said he wasn't "sure how much we should dramatise" such a scenario.

"Banks in Europe are prepared for problems with Greece," he said, all the while acknowledging that "it could get a lot messier in Europe." He said Athens had to ensure that its reforms were implemented and noted that political will was not the problem. Instead, reforms passed by parliament were not trickling down to authorities and being implemented as they should

Borg was also of the opinion that Spain may need a bailout, saying there was "great uncertainty about how its regions are managing their public finances." "I don't think you can rule out that ways will have to be found to help Spain," he said of the eurozone's fourth largest economy.

Throngs push Catalan independence amid Spain's economic crisis

From Al Goodman, CNN

September 12, 2012 -- Updated 0211 GMT (1011 HKT)

Madrid (CNN) -- Throngs of demonstrators filled Barcelona's streets Tuesday in a regional independence protest fueled by Spain's economic crisis.

September 11 is known as Catalonia's national day, and for years there have been demonstrations pushing for independence in the northeastern region.

But Tuesday's turnout was larger than expected, Spanish newspapers reported.

Hours before, Artur Mas, the president of Catalonia's regional government, attended official ceremonies commemorating the day. Later, he issued a warning: if Spain's central government in Madrid doesn't give the region more control over its tax dollars, independence could be an option.

"If we do not reach a financial agreement with the central government, the path to freedom for Catalonia is open," he said.

Many Catalans complain that Catalonia provides many riches and taxes to the rest of Spain -- more than they owe.

Changing this structure and creating a new "fiscal pact" is a primary goal of Mas' government.

"If you compare the money we send to Madrid every year and the money we get back from Madrid, there is a difference -- a near difference of $20 billion," Mas told CNN in June.

In Madrid, Spanish President Mariano Rajoy has said that what the country needs aren't independence protests, but unity and strength to come out of the economic crisis.

Eurozone crisis: Spain refuses bailout terms

Stephen Burgen in Barcelona

guardian.co.uk, Tuesday 11 September 2012 15.42 BST

Mariano Rajoy puts Spain on collision course with ECB after ruling out any bailout terms despite bank president's insistence

Spanish Prime Minister Mariano Rajoy answers journalists questions during a rare TV interview. Photograph: Diego Crespo/EPA

Mariano Rajoy, the Spanish prime minister, has said he is more determined than ever to avoid having to ask for a bailout – despite the insistence last week by ECB president, Mario Draghi, that it would be a condition of the central bank helping to keep down a country's borrowing costs.

"If there is one overriding priority for creating employment it's reducing the public deficit. That is far more important than what people like to call a bailout," Rajoy said in a televised interview on Monday night.

Draghi announced last week that the bank would buy unlimited quantities of sovereign debt to ensure eurozone governments retained access to funding, but he made it clear that there would be strings attached. However, Rajoy said he was not prepared to accept such conditions. "I couldn't accept anyone else telling us what our policies should be or where we have to make cuts," he said.

How this apparent intransigence is received in Brussels and Berlin remains to be seen, but Rajoy received some support for his stance on Tuesday during a visit to Madrid by the Finnish prime minister, Jyrki Katainen, who said a bailout could be avoided as long as the measures taken in Madrid were seen as credible.

Rajoy is at pains to show that he is in charge, that he is not the victim of circumstance and that he is making decisions of his own free will and not because they have been imposed on him. He appears to have decided that, if he has to make spending cuts and other unpopular decisions, then he will do it without ceding sovereignty the way the Greeks have been forced to do.

His intransigence is perhaps more a manifestation of an old-fashioned, though admirable, sense of honour. During the interview he was candid enough to admit that he had gone back on election promises not to raise income tax and VAT, an admission few politicians are prepared to make. "The fact is no one told me the deficit was €90bn [£72bn] and not the €60bn I was led to expect. If I'd had that €30bn things would have been different."

Rajoy also reiterated that he would not adopt any measures that would harm pensioners, while dodging the question of whether he would reform the pension system itself.

He insisted, as he has in the past, that no European leader has privately leaned on him to accept a bailout. Nor, he said, has he ever put pressure on the ECB to buy sovereign debt. Pressed on the issue, he said no decision had been taken, adding that he wanted to see what emerged from the next Council of Europe meeting on 18-19 October. This has been interpreted in Madrid to mean that no bailout will be announced before the regional elections, which are due on 21 October in his native Galicia and in the Basque Country. It appears unlikely Draghi was expecting to wait that long for a response.

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