Vinegar and Brown Paper for Spain!

Nine hours of Euro Group meetings again last night, this time could not even summon up a sticking plaster for Spain, and worse, it would appear, the can they have been kicking down the road seems to have entirely disappeared. The summary of their meeting, from Reuters linked below,  must surely prove that the brick wall that always lay at the end of the road for the euro is now plainly in sight, even for the dimwits who waste their hours sitting in Ecofin meetings rather than leading productive lives!

Enough pathetic analogies, the deep sickness in the heads and actions of Europe's leaders is now fully in view for all their near-bankrupt citizens to clearly see, read Reuters summary of the agreement, from here, and note the following absurdity with which it begins:

"The Eurogroup has today reached a political understanding on the draft memorandum of understanding underlying the financial assistance for the recapitalization of financial institutions for Spain, to be provided via the EFSF until the ESM becomes available and then transferred to the ESM without gaining seniority status."

A political understanding, eh - not even any temporary political agreement any more! Doom indeed!

Footnote - If you are a citizen of Europe and believe my description of you as near-bankrupt is inaccurate look at how you value your worth, think of its connection to the meaningless euro, consider your own past votes in bringing this certain result upon your own country, now decide to do something about it and demand your own national politicians bring it to a halt - nothing in Europe can get better until you do!

Moody's approaches reality in Spain

Anybody looking at Spain, its housing bust, its unemployment, its membership of a potentially tyrannical and certainly dis-functional trading block called the EU, would immediately realize that unless all those basic facts are reversed there is no hope for the country nor the economic welfare of its people.

Yet last night's multiple downgrade of its banks by Moody's, rated only the bonds of Bankia as junk. Read here. 


Mr. de Guindos, however , yesterday accepted the suicidal interdependence of the Spanish banks and Spanish state, read an earlier comment on that aspect from last April from here, aptly titled Hazardous Tango.


Here lie the real political risks that makes all such banks unsuitable for investment. Banks domiciled in Spain, even those having strong overseas assets, are subject to the demands of the Spanish State and soon perhaps an authoritarian, anonymously EU controlled, non-democratically accountable Regulator, who could sequestrate assets at will, or upon a mere whim or unsubstantiated market rumour.


If Britain stays within the EU and goes along with such activities and practices within the Euro Zone, then the suspicion will grow that such financial tyranny could eventually extend to London, that then would be the greatest danger for the Corporation of the City, putting the risks of giving the people a say in their country's future by means of an EU referendum (see my tweet of last evening, on this,) into utter insignificance! 


If Cameron goes along with whatever occurs in Brussels from this Thursday and on into next weekend, that is when a capital flight could begin from London, then Britain truly will be tied to Europe forever and Europe will be a tyranny as defined by Karl Popper, where the rulers may only be replaced by bloodshed.

Enough Greek electoral folly - now back to Spain and Italy

Standard & Poor’s says the Spanish property crash is only halfway, yet the damage to the banking system so far has already forced the state to seek a €100bn (£80.4bn) bail-out. 

Spanish banks must roll over €545bn in debts, yet they are running out of collateral to borrow from the ECB. The banks can no longer prop up the state, and the state can no longer prop up the banks, and global investors will fund neither.

Ambrose Evan-Pritchard from the Telegraph this evening, linked here.

This blog predicted Greece would be a sideshow come the second election this year in Greece, with Spain and Italy at the forefront of concerns. I never would have guessed, however, that as the crunch moment arrived, the leaders of Germany, France and Britain would all be high-tailing it across the Atlantic to a beach resort in Mexico, for more wining, dining and pointless fantasy-world chat resolving nothing - (known in politer circles as the G20)

Why not inflate it up to the G100, like they did with our money for zero gain. G5, G7, G20 heck the precedent is set, the more countries the better the dinner conversation and the less chance of doing anything useful.

In the USA at least TV viewers can hear the truth on the EU from its purported parliament

The link to one US broadcaster with yesterday's speech of Nigel Farage MEP may be viewed and seen from this link.

The English transcript which appears unworthy of mention by the UK media is as follows:

TRANSCRIPT:

"Another one bites the dust. Country number four, Spain, gets bailed out and we all of course know that it won't be the last. Though I wondered over the weekend whether perhaps I was missing something, because when the Spanish prime minister Mr Rajoy got up, he said that this bailout shows what a success the eurozone has been. 

And I thought, well, having listened to him over the previous couple of weeks telling us that there would not be a bailout, I got the feeling after all his twists and turns he's just about the most incompetent leader in the whole of Europe, and that's saying something, because there is pretty stiff competition.

Indeed, every single prediction of yours, Mr Barroso, has been wrong, and dear old Herman Van Rompuy, well he's done a runner hasn't he. Because the last time he was here, he told us we had turned the corner, that the euro crisis was over and he hasn't bothered to come back and see us.

I remember being here ten years ago, hearing the launch of the Lisbon Agenda. We were told that with the euro, by 2010 we would have full employment and indeed that Europe would be the competitive and dynamic powerhouse of the world. By any objective criteria the Euro has failed, and in fact there is a looming, impending disaster.

You know, this deal makes things worse not better. A hundred billion [euro] is put up for the Spanish banking system, and 20 per cent of that money has to come from Italy. And under the deal the Italians have to lend to the Spanish banks at 3 per cent but to get that money they have to borrow on the markets at 7 per cent. It's genius isn't it. It really is brilliant.

So what we are doing with this package is we are actually driving countries like Italy towards needing to be bailed out themselves. 

In addition to that, we put a further 10 per cent on Spanish national debt and I tell you, any banking analyst will tell you, 100 billion does not solve the Spanish banking problem, it would need to be more like 400 billion.

And with Greece teetering on the edge of Euro withdrawal, the real elephant in the room is that once Greece leaves, the ECB, the European Central Bank is bust. It's gone.

It has 444 billion euros worth of exposure to the bailed-out countries and to rectify that you'll need to have a cash call from Ireland, Spain, Portugal, Greece and Italy. You couldn't make it up could you! It is total and utter failure. This ship, the euro Titanic has now hit the iceberg and sadly there simply aren't enough life boats."

The video of the speech is here:

Finn's Two Main Opposition Parties reject Spanish Bank Rescue

The crucial report, that has taken just under 24 hours since the first details of the deep deception that is the Spanish Bail Out started to appear, is linked from here.

Opposition chairs: No Finnish support for Spain

The leaders of both opposition parties in the Finnish Parliament have strongly rejected any participation in a Spanish bank bailout.

Hardly surprising this news, is it? After all any Triple A rated Euro Zone country lending to Spain's banks under these reported conditions could hardly expect to retain their own triple A rating for long, let alone their Government posts if still a surviving democracy! More background from Open Europe here.

Spains bailout and property bust

Pumping our good money to the banks that made these bum investments solves nothing while merely deepening the crisis:

Olli Rehn's Press Spokesman confirms grab for enhanced EU Commission powers

Spain is now so financially desperate it seems ready to conced any amount of sovereignty top save itself. A report from India on yesterday's dangerous developments is linked here, from which comes the following confirmation of the EU Commissions willingness to extend their arbitrary and non-democratically restricted powers!

A spokesman for Olli Rehn, the EU commissioner in charge of economic and monetary affairs, said draft legislation designed to step up financial discipline in the euro zone, would create such a fiscal authority by granting new powers to the EU's executive.

"This would grant enhanced powers to the European Commision on fiscal surveillance, including allowing the sanctioning of countries," said Amadeu Altafaj.

"Even before a budget is drafted and reaches the national parliament, the Commission could ask for a revision of the budgetary plans if it considers this would not allow a country to meet its fiscal commitments, and thereby could endanger financial stability."

Guardian follows this blog's concerns on BA/Bankia of this morning!

The Guardian newspaper tonight is following up on this blog's concerns of this morning on likely problems for Britiah Airways from the ever deepening Bankia banking disaster, on which the same newspaper has further startling developments this evening at the start of that aricle, read here. A brief quote on the reported desperate moves to directly involve the ECB in keeping the stricken financial dinosaur afloat is here:

Spain is considering proposals to inject €19bn (£15bn) of capital into nationalised Bankia in the form of government debt that could then be used to raise money from the European Central Bank (ECB), forcing it to get involved in what may become a far wider bailout of Spain's creaking banking sector. 
Details remain sketchy, but sources in Madrid confirmed that a refinancing involving the ECB was the most probable way forward for a Spanish government that will have trouble raising €19bn itself at a manageable interest rate.
 By avoiding the markets altogether, the government would indirectly "push the financing of Bankia's bailout on to the ECB", according to El País newspaper.

The consequences of Greece and Spain collapsing in tandem

The Economic Times from India has an interesting article on the consequences of the ever more likely-seeming combined collapse of Greece and Spain, read here.

The following is a brief extract, but the entire article is worth reading:

"When you have Greece and Spain happening at the same time, the problem becomes exponential and very, very dangerous," said Stephen Jen, a former economist at the International Monetary Fund who runs a hedge fund in London. "So far, the policy has been to buy time and build a firewall - but that just makes the cost bigger. There is just no good ending here."

The numbers do look dire.

Stephane Deo, an economist at UBS, estimates that the cost of a Greek exit to European taxpayers would be 225 billion euros, assuming Greece defaulted on the money it now owes to European public institutions.

But, he says, the real fear is that while that was happening, the slow-motion collapse of Spanish banks from toxic real estate loans could suddenly turn into a fast-moving bank run, as depositors pulled out their money.

With Spanish banks now holding deposits of 2.3 trillion euros, such a loss of confidence could be disastrous for Spain and for the highly interconnected global banking system. The financial world's assumption lately has been that it is sufficiently prepared to absorb the consequences of a Greek withdrawal from the euro. But if a Spanish banking collapse were factored in, Europe's long-dreaded "Lehman moment" might finally arrive. "The scale is just so much bigger, when you talk about Spain," Deo said.

Santander downgrade another exposure for Britain to the Euro

The reports coming in on the downgrade by S and P by two notches of the huge Spanish bank Santander, must surely be of great concern to HM Treasury!

According to some such reports our sloppy politicians, civil servants, Bank of England officials and other financial regulators have permitted some 26.7 million British comsumers to run accounts with this bank, most of which acquisitions were made even when it was increasingly obvious that the Spanish economy and indeed the sovereign itself was in deep, deep trouble.

Now of course these accounts might still be quite secure and the assets they represent perfectly intact and available to Britiain's guarantors against any further difficulties or even possible eventual default. On the other hand seeing how everything else connected with banks, governments and the EU has gone over recent years, then perhaps things might not end up quite so clear cut!

Keeping Europeans Calm or perhaps just Ignorant!

One of the most suspicious events of the past few years of economic crisis has for me become evident in watching the activities and results of the Spanish bank Santander. Yesterday saw the results of that operation published, in the USA early yesterday and this morning in Europe. There are lots of bits missing in the version that seems to be most available from Euope. Compare Reuters US edition from here and the AP Bloomberg Businessweek version from Madrid linked here.

On their property portfolio the following is the main highlights provided for Europe:

Banco Santander said Thursday its first-quarter profits fell 24 percent as its provisions for bad loans rose sharply, particularly in its recession-hit home market of Spain. The eurozone's largest bank by market capitalization said its net profit in the January-March period was (EURO)1.6 billion ($2.1 billion). Revenue grew by more than 8 percent to (EURO)11.4 billion.
That income gain, however, was offset by bigger loan losses -- Santander set aside (EURO)3.1 billion in provisions, up 51 percent from the same quarter of 2011.
Banco Santander S.A. said non-performing loans amounted to 3.9 percent of its portfolio, an increase of 0.37 percentage points. In rececession-plagued Spain, the ratio rose 1.18 points to 5.75 percent.

In the USA report things appear far more gruesome and one suspects a fairer view of the absolute disaster ongoing in the Spanish property market can thus be obtained:

Santander (SAN.MC), the euro zone's largest bank, said on Thursday it still had 1 billion euros in property-related losses to come after first quarter profit was hit by rising loan provisions in recessionary Spain and overheated Brazil. Spain has instructed its banks to set aside capital to cover a funding gap of tens of billions of euros stemming from a decade of unsustainable lending to property developers during a real estate boom that went abruptly into reverse in 2008. Santander said it would take the rest of the provisions throughout 2012. With more Spanish householders and businesses defaulting on debt as the economy sinks back into recession, and nearly one in four workers unemployed, investors fear the scale of Spain's problem might ultimately require an international bailout as in Greece, Ireland and Portugal....

S and P (based in the USA) knocked Spain's credit rating down two further notches this morning! Irish Times report from here.

EU political will cannot save Spain.

The following is a very brief extract from an article by Pater Tenebrarum on Acting Man, linked here, which is preferably best read in full:

“The headline numbers on the combined European firewall are as large as €940 billion. This includes €220 billion of funds already committed to Portugal, Ireland and Greece (note that this is the 'theoretical maximum' at the moment, ed.) Germany would guarantee a total of €401 billion, but the amount currently approved by the Bundestag is only €211 billion....Greece would guarantee €20 billion – quite a chunk for a country that has just been bailed out.... Spain would guarantee/owe €176 billion – 16% of GDP and 154% of the projected tax revenues for 2012.”

It follows from the above that if Spain really needs a bailout, the total amount available for the European 'financial firewall' will be much smaller than advertised, since Spain can hardly be expected to bail out itself (although Spain's government has recently decided to get creative with its banks, which are supposed to lend the bank bailout fund the money it needs to bail them out, so you obviously never know).
If all the 'PIIGS' mooted contributions to the ESM were to be subtracted, the total amount available to the ESM would shrink by about one third. Moreover, the ESM will start out with only €80 billion in paid in capital – the remaining €500 billion can be 'drawn upon request' – they are mere guarantees.

EU silence on Argentina's seizure of an EU energy Company!

EurActiv which is supported by and reports upon events of the European Union, seeks to imply that a protest has been lodged against Argentina in an article titled "EU outraged as Spain's Repsol ousted from Argentina". It is linked here.

On reading the article it may be quickly seen no such outrage has been expressed. Indeed from the second paragraph of the exact quote from below, it can be noted that the Commission response quoted is from 13th April, before the announcement of the expropriation!

Spain vowed "clear and strong" measures over what it called a hostile decision, while the EU executive warned that an expropriation would send a very negative signal to investors.
Commission to send team to Buenos Aires
Speaking to the press on 13 April, Commission spokesperson Olivier Bailly said the the EU executive sided with Spain in the dispute. A Commission team will visit Argentina on 19-20 April to discuss the issue with the country's authorities.

The deliberate disregard for the truth in all areas of the EU involvement can therefore now be seen to extend to hugely sensitive foreign and diplomatic matters, where a grotesque and expensive army of EU officials under Baroness Acton, serve only to render the EU a global laughing stock and political football for tin pot South American failed states of even lower economic stature than the EU itself.

Spain can ill afford such an economic blow at this juncture. Having handed its governance to Brussels it has rendered itself powerless to even properly protest, a harsh lesson on the real world for the rest of Europe!

UPDATE 0820 BST Read background to the seizure from Acting Man linked here.

Spain & Italy - A Scary Chart

Here is one from Acting Man, link!

Treasures from the threads - Number 75 Spain

On an article in the Telegraph on the growing disaster in Spain came the following comment:

owainglyndwr
Today 12:54 PM

‘Under Rajoy, Spain has been trying to get its finances in
order, but the challenge just seems too great.’
The task is truly awesome for the decentralized State and banks having gorged upon the cheap money from 1997 to 2007.
In 2006 Spain built more houses than France, the
UK and Germany combined. 760, 179 dwelling starts. In 1990 to 1996 the average number of starts was 240,000. Little wonder Spain now has one million homes unsold. House prices (30% down since peak) and the assets underpinning Spain’s banks are central to Rajoy’s plans. House prices are likely to fall further and its questionable if Spain’s banks have provided enough for the existing falls. Banks delaying foreclosure to prevent further market falls, crystalizing the
losses is certainly an option when unemployment is high and there are few able to buy. Bank assets are however are marked to fantasy rather than to market.
Spain has 17 autonomous regions each with politicians
pursuing their own agendas exerting considerable spending power. Health and welfare make up 80% of the regional budget spending under this devolved system. Property taxes used to be an important revenue source for the free spending regions, as this income has fallen  many have growing deficits. It’s going to be a process of herding cats for Rajoy.
Spain with 24% unemployment (50% youth unemployment) needs considerably more than just labour reforms and cutting public spending. It needs growth, quickly. Poor cash-flow is like a heart attack. So where will growth come from? In the past millions of tourists flocked to Spain to enjoy cheap holidays and many purchased Spanish holiday homes fuelling a property building boom.  Now using the harder currency of the euro Spain for the tourist is not so attractive anymore. Many Brits now enjoy holidays in Turkey.

‘In February, Spanish banks' net ECB borrowing was €169.8bn
– a staggering 47pc of ECB lending to all eurozone banks. In March, that figure surged again, to €316.3bn. Spanish banks are now under intense pressure and that distress, as it bursts into the open, will soon be dumped on the state.’
Indeed. I wish the Spanish people well, they have shown
remarkable fortitude and restraint with 24% unemployment. However there is one crucial difference Spain has with Ireland. Spain now appears to be entering a banking crisis with net public debt of 80 %. Ireland started this process at 25%. One in five Spanish mortgages is now in negative equity with a 30% fall from peak. This is not surprising. In 1997 – 2007 house prices rose by  187%.
In Ireland it’s taken five bank bailouts and the banking stress
tests being independently verified last year to help restore a degree of confidence in Ireland's banking system. There is still a considerable amount to do before Ireland has a banking system fit for purpose. Ireland was the only country in Europe to have its stress tests verified. The model used a 70% fall in house prices based upon the Nevada, Los Vegas house price falls. Spain might have to consider this option if house prices go into free-fall and markets refuse to lend to Spainish banks at a reasonable price . To calm the herd you need to get ahead of it providing accruate data not simply politicians providing
press statements.

Irish Banks had €85.1bn in outstanding loans from the ECB as of March 30, down from a figure of €87.1bn in February, while emergency loans from the Irish Central Bank fell to €45bn from €45.2bn.  Still shockingly high but moving in the tight direction. Overall Irish bank borrowings have fallen by almost a third — from a high of €187bn in February 2011 — as banks began to aggressively shrink their balance sheets.
The euro truly is a currency for the good times.  Just so long as any country which depends upon tourism for a large part of its GDP isn’t using it when there is a recession or depression.
Act II in this euro drama shortly follows. The warm up band
of Greece, Ireland and Portugal are now leaving the stage. The main acts soon to follow are Spain, Italy and possibly France. How will Hollande as the likely French President next month react? 75 % tax on the wealthy and a renegotiated fiscal
pact? Only Portugal has passed Angela’s plan so far so its little more than a photo for the history books.  Will her fiscal toy be thrown out of the euro pram by a new socialist France? How will Germany re-act?
No wonder much of the American money is reaching for the
popcorn rather than the wallet when it comes to parts of Europe. A black comedy indeed of european political errors and 'light touch' eurozone central banking oversight upon bubbles that have now burst. The butchers bill is now being presented to the european taxpayer who has lost a few limbs.

Italians blame Spain for 41% jump in their 3 year borrowing costs over one month!

The EU continued with its long track record of spreading distrust and despair across its member states today, as may be noted from this quote from FXStreet.Com:

The Italian Treasury held a bond auction today during which it sold 2.89 billion euros of three-year bonds, somewhat less than the 3 billion on offer. The bonds maturing in March 2015 were sold at a yield of 3.89% (in comparison with 2.76% the country had to pay at the previous auction in March). One-year debt costs had also gone up at an auction held the day before.

Italian officials blamed Spain for this outcome, claiming that it was a contagion effect from the country's debt crisis.

A sudden rise in short term interest rates is one thing, but a 41%jump in costs for 3 year loans must surely be simply horrendous and previously unknown beyond banana republics and third world countries with undeveloped economies. Surely this is not what the EU replaced the elected government of Italy to achieve? How long for Monti now one must wonder?

My reply to John Redwood today - Spanish property prices.

Martin Cole

Posted April 11, 2012 at 6:40 am | Permalink

Your comment is awaiting moderation.

Much of the self-delusion in Spain, as in the USA and Britain, has centred around the fiction of a cushioned fall in property values being achievable by government policy.
I linked a March property price report for Spain last evening from my blog. Your readers may find it on the following link:
http://news.kyero.com/2012/04/10/spanish-house-prices-fall-28-6-since-2007/

Europe's markets reopen today - Euro crisis could be set to re-appear

The following are the final paragraphs and chart from a posting on Acting Man, linked here. Note the four different coloured scales when viwing the chart., which is best viewed when zoomed in upon!

10 year government bond yields of Italy, Greece, Portugal and Spain – suddenly yields are shooting higher in unison again, with the other weak euro-land sovereigns following Spain's yields higher - click chart for better resolution.

 

---

 

Conclusion:

We must be alert to the possibility that the pause in the euro area crisis may be over. If that is the indeed the case, then a rocky period for 'risk assets' may lie directly ahead. Of course we can not guarantee that this is what is happening – the markets may yet pull back again and reveal these recent moves to be merely corrective in nature.

However, the economic situation Spain finds itself in is well known for being quite grim at this stage. As we have chronicled in these pages, the banking system is in dire straits, notwithstanding ample liquidity provisions by the ECB. Unless something happens fairly quickly that convinces market participants that the danger is once again postponed, this is a situation that could very quickly get out of hand again. In fact, if we were to bet, this is what we would be inclined to expect. 

Spain and Italy, the awful nightmare disguised by Draghi's LTRO's

No added comment is needed here from this blogger, just a quote of two consecutive paragraphs from the Acting Man blog of today linked here:

We would point out here: although the market is currently cutting Spain some slack in the wake of the ECB's LTRO's, Spain's debt situation is not any better from what it was in November of last year when the market panic was at its height. On the contrary, the situation is clearly worse now, as the government had to admit that last year's deficit was higher than advertised and that this year's will again be higher than originally planned. In short, if the market was in panic in November, it would actually have even more reason to be in panic today. This underscores that the main determinant of short term financial market action are perceptions and sentiment. Facts like those cited above work to alter these perceptions over time. Just wait for the LTRO effect to dissipate, and we will likely be back at square one.

Italian Shenanigans

Last week it was revealed that Italy had to pay Morgan Stanley some $3.4 billion in January that it owed on account of a derivatives trade that has blown up (more precisely, an interest rate swap that went exactly the wrong way – for Italy, that is). It seems that this is only the tip of the iceberg however: Italy is in the hole by $31 billion on its various outstanding derivatives bets.

Spain trashes EU Fiscal Treaty the day it is signed!

Living within the EU, all must by now be fully aware of the hypocrisy of those in charge, the overriding of national parliaments, the corrupt sham that is the EU Parliament and the complete disdain for any attempt, through referenda or other means, for any to suggest a deviation from the clearly intended but thinly disguised Marxist course.

Yesterday, however, this obscene nonsense reached new heights, as 25 members gathered in Brussels to sign a Treaty, the provisions of which none have the slightest intention of maintaining, and on the same day, one of their larger members, Spain, actually announced a budget which drives a coach and horses through all the main provisions of such Treaty. The Economist blog comment on that budget is here.