Government expect 1.7% fall.
The Government says it expects a fall in economic activity of 1.7% this year. This is 0.7% more than the European Commission’s prognosis. The government of Rodriguez Zapatero projected growth in the economy for this year of 2.3%......
In our Yearly Report (written in December last year) we said, ‘Spain will go into a more profound recession as Mariano Rajoy uses the axe on public works and infrastructure investment. The economy may shrink 2% to 5% during 2012.’
Dwellings still 47,000 euros too expensive
The Institute of Businesses, investigating the housing market, has come to the conclusion there is still a gap of 47,000 euros between offer and demand for average dwellings. In some regions the difference is even higher, including the Balearics, Cantabria, Galicia, Murcia and the Canaries, where prices are up to 80,000 euros above what the market is willing to pay.
Repair instead of buying
The Spanish consumer organisation OCU reports that Spanish consumers must juggle to make their income last to the end of the month. They are changing their purchasing habits and limiting expenses. In January, 42% of the population said that they just managed to get to the end of the month. Less Spaniards are visiting bars and restaurants; they take their drinks at home. Only 7% have purchased a car over the past months, 20% a computer and 95% say they will not buy a dwelling.
Dry pastures
Spain is experiencing the driest winter for the past 70 years. The lack of rain has left a large area of the pasture land dry, with water reservoirs at only 62% of capacity. Farmers growing maize, rice and vegetables are considering switching to grain, whilst cattle breeders in Galicia have used fodder which should have lasted until the end of the year. Producers of fruits, grapes and olives are also worried.
Frost has damaged citrus fruits in the Valencia Region, and low temperatures have placed in danger cereals in Andalusia.
Credit cards more expensive
In February, banks increased further the costs of maintaining credit and debit cards. Over all charges increased 0.6% compared with the previous month. To have a credit card now costs 37.93 euros p.a., a debit card 20.39.
Commission charges for using a Spanish credit card abroad increased in February to 3.39%, seven points up from January. The commission on using a Spanish debit card abroad increased to 4.02%.
Public works down 53.3% in 2011
Last year the Ministry of Development and its public entities invested 2,636 million euros in public works; 53.3% less than in 2010, and even less than in 2007 when it was 10,002 million and 2008, 10,625 million.
Higher taxes in Spain than UK, France or Germany
According to a study published in ‘The Wall Street Journal’ Spanish taxpayers, from this year, will suffer a maximum tax load of 52%, and even higher in certain regions, including Catalonia, with 56%. Only Sweden and Belgium have a higher maximum tax, with 56.4% and 53.7 respectively.
Thus, citizens pay in Spain more taxes than those in UK, France or Germany.
35,000 million to Town Halls and Regions
The Government has been forced to give Town Halls and Regions a total of 35,000 million euros in loans over 10 years, at 5% interest, so they can pay their debts to suppliers.
The Crisis
1. The Telegraph published on the 2nd of March a study by Mats Persson, who is Director of Open Europe, an independent think-tank with offices in London and Brussels campaigning for EU reform. Referring to the partial agreement reached by the Eurozone finance ministers, he comments that
‘Greece will most likely default or be required to take another bailout in three year’s time…Stuck with very poor growth prospects, the debt relief that has been offered to the country is not nearly enough to allow it to bounce back – initially, it only shaves off 2% of the country’s debt to GDP, while a large chunk of the bailout cash will go to banks and bondholders, not to the Greek people.’
He continues:
‘….at the start of this year, 36% of Greece’s debt was held by taxpayer-backed institutions – the ECB, the IMF and the Eurozone bailout fund….Following the voluntary Greek restructuring and the second Greek bailout (around summer 2012), we expect that a huge 62% of Greek debt will be owned by taxpayers.’
‘And here’s the real worrying part. By 2015, once all the cash from the second rescue package has been paid out, taxpayers’ total share could increase to as much as 85%.....This means that in three years’ time there will simply be too few bondholders and banks left holding Greek debt to offer any substantial debt relief. Eurozone taxpayers will then be left carrying almost the whole burden from a Greek default….’
Rating agency Moody’s have lowered Greek debt to the bottom, at just one level above insolvency.
2. The European Central Bank has lent the record sum of 529,531 million euros to 800 banks in the Eurozone at an interest rate of 1% over 3 years. Spanish banks picked up approximately 20% of the total, with shaky Bankia as the European leader, borrowing 25,000 million.
The stated objective of the ECB is to facilitate credit to families and businesses, and stimulate the purchase of public bonds. With an interest on such bonds of more than 5%, this should be a profitable investment by the banks. But the banks have mostly placed the money with the safe ECB.
However, the injection from ECB helped place a new bond issue by the Spanish Treasury, with 4,501 million euros over 3 and 5 years at an interest rate as low as it was in the middle of 2010. The country risk fell to 306 points, but rose again to 337 points on Tuesday afternoon.
But Germany is not happy with the shower of money on the European Bank. President of the Bundesbank, Jens Weidmann in a letter to BCE president Draghi warned of an increasing loss of credibility in the euro system and concern in Germany over the measures that the Central Bank has taken to contain the credit crisis.
The criticism has also been echoed in ‘The Financial Times’ by the General Director of Standard Chartered, Peter Sands, who said the spraying by BCE has ‘sowed the seeds of the next crisis.’
The Spanish share index IBEX has registered the greatest fall in 3 and a half month, down to less than 8.200 points. The reason being the doubt of the ‘haircut’ by private investors in the Greek debt settlement.
3. The new Spanish government is at loggerheads with the European Commission over the deficit in the budget for Spain this year. The problem is a deficit of 8.5% for 2010, or 2.5% more than was agreed with Brussels (6%). The Commission is insisting additional cuts in spending to come down to the agreed level, but Rajoy is trying to dodge the demand, due to the demonstrations and strikes against the cuts already made and the regional elections in Andalucia and Asturias on 25thMarch.
Rajoy has declared it is a matter for the competence for the national government, asking the Commission for a revision of the agreed targets, but the commissionaires insist that a revision cannot be made before Spain has submitted a state budget for this year. Rajoy has announced a deficit of 5.8% of the Gross Domestic Product, instead of the 4.4% foreseen in the EU stability pact. But the Commission maintains that the matter is grave and reserves its right to take ‘corrective measures’.
The difference of 2.5% in public spending for 2010 means a total of 44,000 million euros, almost impossible for Rajoy to cover by cutting costs this year, especially as the country is in a deepening recession. It could very well have become an act of hari-kiri for the new government.
4. The previous prime minister of Iceland, Geir Haarde, is in court accused of negligence in handling the banking collapse suffered by his country in October 2008. He is at risk of 2 years imprisonment if found guilty.
When will ex-prime minister of Spain, Rodriguez Zapatero, be taken to court for his excessive negligence in handling the collapse in the property sector suffered by his country in 2007 and 2008? Remember ‘Crisis, which crisis?’
Private Holders of Greek Debt Should Reject Swap Offer, DSW Says
Private investors in Greek government bonds should reject a voluntary swap offer aimed at reducing the country’s debt load, according to German private investor lobby group DSW.
“We advise investors in securities with short maturities in particular not to accept the offer,” Marc Tuengler, DSW’s managing director, said in an e-mailed statement today. “As the new bonds have maturities of 30 years, investors with bonds that mature in 2012 would face an even higher loss” than the 53.5 percent cut agreed in the debt swap with Greece, he said.
Private creditors reached an agreement with Greek and European officials on the biggest sovereign-debt restructuring in history. The plan seeks to reduce Greece’s borrowings and lower debt. Under the deal, investors will forgive 53.5 percent of their principal and exchange their remaining holdings for new Greek government bonds and notes from the European Financial Stability Facility. Private debt holders must indicate by March 8 whether they will take part.
The Greek government is seeking a participation rate of more than 90 percent and set a 75 percent rate as a threshold for proceeding with the transaction.
The risk related to not accepting the offer would be “manageable” because if the approval rate was between 75 percent and 90 percent of the outstanding nominal value, a mandatory swap would be likely to happen, the DSW said. Therefore investors who opposed the swap would be “treated as if they had consented and lose nothing,” the investor group said.
“Should the quota be above 90 percent, the swap will be carried out voluntarily,” it said. “That would mean the maturity of bonds held by investors who decided against the offer wouldn’t change,” Tuengler said in the statement. For bonds maturing in 2012, there would be a “quite likely chance” of a repayment at nominal value, he added.
Dusseldorf-based DSW, which represents about 25,000 private shareholders and retail investors as its members, said on Feb. 28 that Greece needs to provide clarity on the treatment of individual investors in its debt swap or risk a holdout that may trigger the default European leaders are trying to prevent.
To contact the reporter on this story: Oliver Suess in Munich at [email protected]
To contact the editors responsible for this story: Frank Connelly at [email protected]; Edward Evans at [email protected]
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