Spain is now moving in a spiral, propelled between hope and despair, light optimism and black pessimism, assurances from the politicians about what they would never do or permit being done, and now the hard decisions by the Government to the contrary......
The spiral is pointing downward, as if it were a celestial body being drawn irresistible into an enormous black hole in the financial Milky Way. Greece has already disappeared, 'led' by the same parties and politicians who brought the country to chaos. Their only new proposal is for an extension of some years for the implementation of the commitments agreed......
On the very day Germany accepted the use of the European Rescue Fund in an attempt to try to avoid a collapse of the Spanish banking system, the country risk climbed to over 640 points and the interest rate for 10 years public bonds passed 7.5%, both sad historic record levels. The markets are telling Spain to get under the European saving umbrella !
The Valencia Regional Government has given up all pretences and has asked the Government for financial help.
'Let Germany pay'
It seems that the only way out of the squeeze, for Rajoy and the other leaders of the countries in problems, is to seek financial support from Germany and the other northern European countries with sound economies, in the form of Euro Bonds (where the Euro Zone countries of Northern Europe subsidise the interest rate which the markets demand from the southern governments) or an intervention from the European Central Bank.
Our readers will know that there are no legal obligations on the Northern countries to do that and that no such impossible commitments exist in any agreements. The European Union is not a federal state, but a union of collaborating, independent countries.
What about the moral obligation of a wealthy and functioning EU state to assist other countries in a crisis?
Spain and Greece are the countries, which from the start of their entries into the EU, have collected most of the financial support paid for by taxpayers in the North. A substantial part of which has ended up in the pockets of builders and politicians.
The German parliament has finally and grudgingly approved their participation in the bailout for the Spanish banks, however, today there is a clear majority of Germans who refuse to accept any further demands from the countries which have mismanaged their economies, including paying the price for allowing Greece to leave the Euro Zone. An opinion poll shows 52% of Germans are against the rescue of Spanish banks, for which Germany must contribute up to 30,000 million euros.
Spain in Administration
In spite of Rajoy pretending that only Spain’s banks have asked for a rescue and not the country, the Spanish Finance Minister in an interview recently made it abundantly clear that the agreed credit, of up to 100 billion euros, is going to the government agency FROB, and that it is Spain guaranteeing the interest payments and the repayment of the loan within 12.5 years, although some years of grace maybe added.
Moreover, Spain has had to accept 32 conditions in order to receive the funds, amongst them:
Certain powers, including the issuing of banking licences and sanctioning of banks, must be transferred from the Government to the Bank of Spain.
The 'men in black' from the 'troika' consisting of the EU Commission, the European Central Bank and the IMF (International Monetary Fund) will supervise on a quarterly basis the implementation of all conditions established.
The banks receiving funds under the agreement are prohibited from paying dividends or exorbitant salaries. They must increase their share capital and may be liquidated if the costs of keeping them afloat are too high for the taxpayers.
On the other side, Spain is allowed a further year to reach the aim of reducing its budget deficit.
Pessimism reigns in Spain
In spite of parliament approving the austerity measures of the Government (due to the absolute majority of PP) the business community is anchored in deep pessimism. In a recent study, Spanish companies said have the least faith ever in the future of all European countries. In the study, Spain was given a score of minus 62; those polled were most optimistic about German companies, who scored plus 46.
After the presentation and approval of the newest Government program, the Ibex share index has dipped substantially
Opposition leader Rubalcaba has estimated that the adjustments of the government will add another 200,000 people to the growing army of unemployed.
'Greatest danger to world economy'
The IMF (International Monetary Fund) in a recent presentation of the economical perspectives has given a stern warning by declaring that Spain, together with Italy, is 'the biggest danger to world economy.' The fund has reduced the expectations for the Spanish economy next year from plus 0.1% estimated in April, to a minus of 0.6%.
To illustrate how dramatically the situation in Spain has deteriorated over the past year,
we remind our readers of what we wrote in the 2011 Summer Report:
'…....The financial earthquake also hit Spain, increasing the “country risk” from the already high 300 points (German bonds being the standard of measurement as we have explained in previous reports) to 380 points, an historic high for Spain. The interest rate on Spanish bonds demanded by the markets hit 6.30% (interest on German bonds is 2.5%). The IBEX index fell 5.3% in two sessions, to well below the 10,000 mark......'
This year the country risk has been almost permanently above 500 points, the interest rate on bonds close to 7%, and the Ibex stock index below the 7,000 point mark. On 18th July the country risk rose to above 574 points and the interest on 10 years bonds hit 6.941%. On the 20th the risk exceeded 610 points and the interest rate climbed to 7.3, an historic record. The same day the Ibex fell 5.82%, to 6,246 points, with Santander falling 7.32% and BBVA 7.80.
The percentage of bad loans in the Spanish banking system increased from 8.72% in April to a stunning 8.95 in May. The volume of 'risky loans' is now at 155,800 million euros.
The government has calculated that Spain will have to pay 38,000 million euros more interest on its debts than was predicted in this years State Budget.
And a danger to your economy
Spain is not only a danger to the world economy, but also a great danger to anyone resident in Spain, owning a property and/or holding a bank account. The foreign residents, together with the Spanish, have to endure the many new taxes and charges, imposed by the national government, the regions and the town halls. The residents, as well as the non-residents, will see the value of their properties fall further and, if they are banking with the wrong bank, may have their bank accounts frozen for a time. Moreover, the 3% increase in VAT will make life more expensive in Spain.
(Remember this is written by the 'pessimist’ who has consistently been proved right over the past 10 years!).
I recommend seriously to all foreigners to loosen the strings tying them to Spain: cancel their residence permit, sell their property at any price and move their funds from Spanish banks to another country.
And do not get lured into taking a rash decision to buying a new property before the 'danger over' signal has been sounded loud and clearly by someone who has no financial interest in the property market – directly or indirectly.
Come instead to sunny Spain, as a tourist, enjoying the Alhambra in Granada, the Sagrada Familia in Barcelona, El Prado in Madrid, the Mosque in Cordoba; a procession of Moros y Cristianos, some unspoilt beaches, tapas and wine in good bars and gorgeous food in some restaurants.
Spain is the greatest country for tourism in Europe – enjoy it!
Markets fear for Spanish economy as local governments seek financial aid
The Guardian
Spain's regional woes are expected to weigh on financial markets this week after a second local government in three days asked for state aid, increasing fears that the eurozone's fourth largest economy will be forced to seek a full-blown rescue. On Sunday Murcia became the latest region to admit it needed central government help, after European ...
AFP:
A eurozone bailout for Spain's banks and a tough batch of pay cuts and tax hikes have not been enough to save the country from the risk of a full-blown bailout, analysts warn.
Squeezed between public outrage at its austere economic reforms and pressure from European authorities to strengthen its public finances, the government has run out of ammunition.
Hundreds of thousands of Spaniards took to the streets Thursday in the biggest of a string of angry anti-austerity protests.
On Friday, the stock market plunged 5.8 percent and sovereign interest rates rose to dangerous levels, despite the eurozone's approval for a credit line of up to 100 billion euros ($122 billion) to save the banks.
Spain has entered a "death spiral" with its rising financing costs complicating its efforts to pay off its debts, according to Rabobank analyst Richard McGuire.
Analysts at consultancy Capital Economics warned: "With the outlook for Spain's public finances still closely tied to that for its banking sector, there remains a strong risk that the Spanish government will need its own bailout."
The Indypendent wrote:
A eurozone bailout for Spain's banks and a tough batch of pay cuts and tax hikes have not been enough to save the country from the risk of a full-blown bailout, analysts warn.
Squeezed between public outrage at its austere economic reforms and pressure from European authorities to strengthen its public finances, the government has run out of ammunition.
Hundreds of thousands of Spaniards took to the streets Thursday in the biggest of a string of angry anti-austerity protests.
On Friday, the stock market plunged 5.8 percent and sovereign interest rates rose to dangerous levels, despite the eurozone's approval for a credit line of up to 100 billion euros ($122 billion) to save the banks.
Spain has entered a "death spiral" with its rising financing costs complicating its efforts to pay off its debts, according to Rabobank analyst Richard McGuire.
Analysts at consultancy Capital Economics warned: "With the outlook for Spain's public finances still closely tied to that for its banking sector, there remains a strong risk that the Spanish government will need its own bailout."
RTTNews
Asian stock markets are trading lower on Monday on renewed worries about the debt situation in Spain after the country's borrowing costs climbed to a euro-era high.
The Spanish region of Valencia on Friday asked for financial assistance from that country's central government, pushing the Spanish government bond yields above the crucial 7 percent mark. Spain's 10-year government bonds topped 7.3 percent at one point, hitting a record high since the introduction of the euro in 1999.
Eurozone finance ministers on Friday gave final and unanimous approval for a 100 billion euro bailout deal for the recapitalization of troubled Spanish banks. Of this, Euro 30 billion will be set aside for use in case of urgent unexpected financing needs, the Eurogroup said.
Ambrose Evans-Pritchard
wrote in
The Telegraph
7:30PM BST 22 Jul 2012
The financial credibility of Spain is close to zero. Fiscal credibility is zero. Political credibility is zero. The new government of Mariano Rajoy has squandered the advantages of its absolute majority in a matter of months, and completely lost the confidence of Europe's institutions. That is the verdict of unnamed EU officials and sources in Brussels cited by El Pais, following the twin crash of the Madrid bourse and the Spanish bond market on `Black Friday'.
Si (
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