Weekly Report 07-09-12

Weekly Report 07-09-12


Alberto Fabra, the Valencia President, said on thursday that the eastern region will request a further one billion euros from the planned Regional Liquidity Fund (FLR) in addition to the 3.5 billion euros already needed to meet debt maturities.

Earlier this week, Catalonia announced it would be seeking 5.023 billion euros to cover debt obligations due this year. Murcia has requested 300 million euros.

Fabra also said Valencia urgently needs the 1.6 billion euros in funding it had previously planned to raise in the debt markets, although the exact amount of extra funding Valencia requires will depend upon the needs of other regions.

Andalusia also said on Wednesday that it was considering tapping the FLR. José Antonio Griñán, the President of Andalusia, Spain’s largest region, said on Thursday that it was becoming difficult for the region to fund itself and there is a difficult situation in the markets. At the last minute the region has now asked for an advance of 1,000 million whilst it considers the matter further ……..

30% of unemployed would not accept less than 1,000 euros p.m.

In a poll conducted by Manpower, 30% of those unemployed said they would not accept a job with a monthly wage of less than 1,000 euro; 33% would not work for less than 800 euros. This means 63% of the unemployed have rather high expectations.

Of the 35 and 44 years age group 42% said they would not work for less than 1,000. In the age group 45 to 65 years, the percentage was 37, but only 11% of those aged 16 to 24 years agreed.

‘Bad bank’ may not be so bad

The Government has created the so-called ‘Bad Bank’ into which banks operating with state support can transfer their problem properties. The contaminated assets have already spiralled to 75,000 million euros with just the debts of Bankia, CatalunyaBanc, NCG Banco and Banco de Valencia.

The ‘Bad Bank’ in reality will not be a bank, but a fund, where unsold properties will be parked until buyers can be found.

More unemployed in August

After a summer season lull, unemployment rose by 38,200 in August, to 4,625,634. The biggest increase was in Andalusia up 10,365; Galicia was down by 2,931.

Using the reserves to pay pensions

The Social Security system has been obliged to use its reserves to pay pensions. The Reserve Fund of the SS had 67,948 million euro invested in Government bonds; but 4,400 millions have now been sold to pay the extra pensions this summer.

The Social Security system had a surplus of 2,375 million in July, 32.3% less than in the same month last year.

Military warning to Catalonia

‘Do not provoke the lion too much, even if it appears to be asleep,’ said retired Colonel of the Infantry, Francisco Alaman Castro, in connection with the repeated threats of independence from the region of Catalonia. He added ‘independence for Catalonia? Over my dead body, and many others!’

The Colonel has also proposed to detain the mayor and council members of Sant Pere de Torello in the Province of Barcelona, for preparing a motion suggesting that the regional parliament declares independence.

Moroccans occupy Spanish island

19 Moroccans who want to immigrate to Spain occupied a small Spanish island, which is situated just 10 metres from the Moroccan coast at high tide, demanding to be taken to the Spanish city of Melilla. Spanish authorities at first refused to act, but subsequently allowed 3 women (2 of them pregnant) and 3 minors to enter the city.

The remaining 13 are holding out, but Spain and Morocco are jointly preparing to remove them.

Urgent capital injection for Bankia

The Government has been obliged to inject an urgently required 4,500 million euros into the hopelessly failed Bankia bank, to raise the capital level to the minimum required, meaning 8% ‘core’ capital.

The funds were given by Frob, the fund for orderly restructure of the banks. It is expected Bankia will receive further funds when the rescue money for the banks is available.

Valencia lost 6,648 million last year

The Valencia region lost 6,648 million euros last year, way above the deficit of 2,713 million registered in 2010. Income fell from 11,195 million in 2010 to 9,295 million last year, in spite of increases in VAT and income taxes.

Catalonia reduced to ‘BB’

The Rating Agency Standard & Poor’s has reduced the qualification of Catalan debt by two steps, to ‘BB’, that is rubbish bonds. The reasons: the huge regional deficit, the need to apply for an urgent rescue from central government, and tensions with central authorities.

The crisis of the week

The President of the European Central Bank has declared his predisposition to buy Government bonds over 3 years, which has resulted in the interest rates for 10 year Spanish bonds falling from 6.9% to 6.7. The country risk fell 25 points to 477, the Ibex awakened.

The Troika has recommended that Greece reintroduce the 6 day working week, cut resting time between work sessions to 10 hours and reduce compensation for cancelling labour contracts.

Only 25% of Germans think Greece should remain in the Euro Zone or even be granted further financial assistance

Minister of Finance, Luis de Guindos, has said Spain may apply for a financial rescue, once the conditions of such a rescue have been clarified.

The Secretary General of the governing PP, Maria Dolores Cospedal, said, ‘If Spain or her region (she is also President of Castilla – La Mancha) end up asking for a rescue from Europe is not necessarily negative…’

We are close to it now !

A Spoonful of Sugar

Lenox Napier

The government of Mariano Rajoy is hoping to have been seen to be quick and eager to reassure Brussels that Spain may be wounded and in pain, but that the cure is already underway.

The ordinary rate of IVA has gone up to 21% (following a rise last year by the PSOE of 16% to 18%), school-books have gone up in price with a massive tax increase (just in time for the school year), higher prices on public utilities have been allowed (including the electric company, Endesa, making its prices the highest in Europe) and even the poor funcionarios, Spain’s three million strong public servants, have had to wave goodbye to their Christmas bonus. The Minister of Justice is tightening the abortion rules to strict church limits and many file-sharing sites (video pirates if you prefer) are being closed down. Around 160 bank-sponsored evictions are being carried out each day.  The poor have not been forgotten, with the special 400 euros hand-out introduced by the socialists being returned for a further six months, although under strict new conditions.

A recent survey asked if Rajoy should spend more attention on solving the unemployment crisis – also the highest in Europe, with some provinces standing (or rather ‘sitting down’) at 35% – and less on trying to fix the prime rate and appease the bankers in Brussels.

Perhaps, indeed, with all the vinegar, Rajoy should be considering a small bonus to his subjects, a sop to the masses, a bit of good news to treasure during this dark autumn and winter to come.

There was a hint of raising the speed limit on the motorways – but instead, they lowered it on the byways, increased the police presence everywhere and, in a move designed to send the tourist market reeling, the new head of Tráfico has recently said that she wants to see ‘zero alcohol’ on the highway code as soon as possible.

So far, the best the PP thinkers have come up with has been a putsch on the public television and radio of any newscasters and interviewers thought to be meddlesome. The good news is – they’ve put bullfighting back on.

Some opposition politicians and intellectuals are talking of insurrection (as far as they can – a new law has been passed making encouragement to violent protest, even on Facebook, a crime punishable by two years).

The answer to this, according to Cayo Lara, the General Secretary of the Izquierda Unida (the Far Left alliance) could be to imprison a banker. ‘Spain’, he says, ‘needs to have the image of a banker behind bars’ he told Europe Press, adding that ‘the banking fraternity doesn’t need to walk on a bed of roses and that those responsible for ruining many thousands of people and contributing to a blood-bath of public resources should be held to account’.

The Government however refuses to hold an enquiry in Parliament on the origins of the current crisis and, apparently and despite alarming accounts of massive public fraud, no banker appears to be at risk of losing their liberty.

On September 25th, a protest called ‘Occupy the Parliament’ will be held in Madrid. It will be a test of how far the public is prepared to show their impatience with the current crisis.

Spain’s Capital Flight Now Worse Than Asian Financial Crisis

The flight of capital from Spain is now worse than what Indonesia, one of the hardest hit countries during the Asian financial crisis, experienced in the late 1990s, according to analysis by Nomura.

On a three-month rolling basis, portfolio and investment outflows from Spain totaled 52.3 percent of the country’s gross domestic product (GDP), (that’s) more than double the outflows from Indonesia, which reached 23 percent of GDP at the time of the Asian crisis, Jens Nordvig, global head of G10 FX strategy at Nomura wrote in a note to clients on Tuesday.

Spaniards and foreign investors have been pulling money out of Spanish banks as the economy has worsened in recent months, and Nordvig said without the single currency and the flows from the ECB, Spain would already be going through a major currency crisisWe would stress that the broad-based nature of the capital flight, which involves both banking claims and securities and flows from both residents and non-residents, makes for a rather extreme overall outflow, and one that raises serious concerns about the implications for banking sector stability and economic growth,” Nordvig wrote.

According to Nomura, there are plenty of explanations for this, including the fact that the Spanish economy is more leveraged than Indonesia’s and the currency union allows very large capital movements to take place. Data from the Bank of Spain, which Nomura highlighted, showed foreigners were large sellers of Spanish securities in the latest quarter, which generated an outflow of 19.4 percent of GDP. There was also a large outflow from Spanish residents accumulating foreign bank claims. In the latest quarter, the outflow from this source was 16.7 percent of GDP.

Spain is now front and centre in the latest round of the euro zone debt crisis but the Spanish government has so far resisted asking for a bailout from the European Union and other international creditors, except for the aid already agreed to for its banking sector. But Nomura’s economics team believes that Spain won’t be able to avoid a full-blown bailout, which would include a more active role of the ECB in the Spanish bond market.

“The scale of capital flight that took place over the last few months in Spain supports this view,” Nordvig said.The capital outflows also show that Spain’s fortunes seem to be worsening much faster than those of Italy, a country with a much higher debt-to-GDP ratio.

“In Italy’s case, both portfolio outflows and other investment outflows represent a touch more than 5 percent of GDP. For Spain, both sources of outflows are much larger; about 20 percent of GDP in the case of portfolio outflows and about 30 percent in the case of other investment outflows,” Nordvig said.

Nordvig also pointed out that while bank deposits had fallen at Spanish banks, they had remained quite stable at Italian banks

Wednesday, 29 August 2012 10:51

German Politicians Dubious About Greek Economy

Written by  Bruce Walker

German politicians seem to be assuming that the default and then the meltdown of Greece seems only a matter of time. Greece’s sovereign debt now has the status of junk bonds, and the Greek government is floating increasingly extreme ways to raise revenue (like selling off islands or historic relics), and the Greek population is growing more restless the longer that its sovereign debt crisis, with attendant economic woes, continues.

The largest economy in the eurozone is Germany, which also has a reasonable credit rating. It is governed by a coalition of the Christian Democrats of Angela Merkel and the historic market-oriented party the Free Democrats. Phillip Roesler, leader of the Free Democrats, made it clear that recent Greek demands for more money are impossible right now. “What the Greeks have asked for, half a year or two years, that’s not doable,” he said in regard to deferring budget cuts and economic reforms. He said that Greece needs to respect the bailout terms already in place. This is not the only time the German political leader has voiced frustration with Greece. In July Roesler said that the idea of a nation departing the eurozone had “lost its horror.” This, however, drew criticism from Guido Weterville, the German foreign minister, who said that the bullying of Greece should stop. Merkel seemed to side with her foreign minister.

But Roesler’s views seem to have found support from Wolfgang Schaeuble, the finance minister of Germany, who said on Sunday that “more time generally means more money and that quickly means a new program [of bailouts].” Chancellor Merkel, though more politic, has also stayed away from promising anything more to Greece and instead has said, «We are at a crucial moment in the fight against the debt crisis and that’s why I think we should all weigh our words carefully.»

The new socialist president of France, Francois Hollande, has leaned in the direction of Germany and has asked Greece to show commitment to economic reforms, and he has said that any further decisions on help for Greece will depend upon the report of debt inspectors, which should be issued in September. Without the support of Germany and France, it is impossible for Greece to survive under present conditions, yet the political fallout from more austerity in Greece could cause a political collapse.

Greece is a small nation, but the consequences of default would change the balance sheets of banks and corporations throughout Europe by compelling a devaluation of investment portfolios. What follows after that could easily be a snowball. Banks, which overnight would have lower values of assets, would not be able to lend as much money. Those companies whose assets shrink because they have investments in failing Greek bonds would have smaller profits (or greater losses).

The response of Merkel to this looming crisis is to push for even greater political integration of the European Union. This would include a constitutional change in the foundational documents of the EU. It is not clear how that will help. The strongest economies, such as Switzerland, which is not part of the EU, retain independent (and decentralized) government as their best method of preventing the economic maladies that now threaten the prosperity of the Germans and Finns.

Politics and the bargaining of votes with tax dollars is precisely the reason why Greece is in trouble now. One might note that the very strong system of state governments in Germany, which have a greater check on central government power than any other major nation in Europe, is one of the reasons why it has weathered the current crisis so well. (Switzerland and Canada, two other nations with highly decentralized governments, are doing much better than other small- and medium-sized nations).

It is also hard to see how more political integration would prevent resentment from the smaller and more responsible nations like Finland, actually smaller in population than Greece, whose political leaders are already murmuring about being tied to the decisions made largely by bigger states in Europe. It is also hard to see how further integration can do anything but aggravate the tense working arrangements of nationalities within European nations, like the Fleming and Walloon in Belgium, which not too long ago set the record for the longest period between an election and the formation of a government in a parliamentary system — with national differences a principal factor.

Finally, Europeans are very sensitive about past wars that have ravaged Europe. It is hard to imagine anything more galling to the memories of some peoples of Europe, such as the French, than to have the head of the government of Germany call for tighter central control over their nations, unless it would be for the head of their own state to agree with her.

The next few weeks will be pivotal. On September 12, the German Constitutional Court will rule on the power of the bailout, the same day that the Dutch will go to the polls for a general election during a time in which the resistance of Geert Wilders, leader of the Party for Freedom, to the proposed budget has created a crisis. Then in late September, the French will consider the new government’s budget. Depending upon how September goes, the coming crisis of the eurozone could come much more quickly than most people would expect.

Reuter reported

Germany sees Greek, Spanish influx as crisis worsens

BERLIN | Thu Aug 30, 2012 11:18am EDT

(Reuters) – An increasing number of Spaniards and Greeks are working in Germany as their own countries, hit by the euro zone debt crisis, struggle with record unemployment levels, preliminary data from Germany’s Federal Labour Office showed on Thursday.

Some 12.2 percent more Spaniards and 10.1 percent more Greeks were employed in Germany in June compared with the previous year, according to the data.

«It is plausible to surmise that these increases are related to the debt crisis in these countries,» the office said in a statement.

In June the number of people from Greece, Portugal, Italy and Spain who had a job in Germany rose by a total of 28,000 or 6.6 percent, but these foreign workers were not necessarily recent migrants, the office said.

Roughly one in four people is out of work in both Greece and Spain while Germany’s unemployment rate, at 6.8 percent in August according to data released earlier on Thursday, remains close to its lowest since Germany reunified more than two decades ago.

A record number of people took German language courses and exams at Germany’s cultural and teaching institution the Goethe Institute in 2011, with the strongest increase in interest coming from southern and western Europe. In Spain, which is lingering in its second recession in three years, 35 percent more people studied German at the Goethe Institute last year.

’Bad bank’ approved

AP) MADRID – Spain’s government made a further attempt at solving its economic crisis Friday when it approved a new package of measures to create a «bad bank» to handle the country’s toxic property investments and give the central bank more powers to shut down troubled lenders.

The reform is the fifth such package Spain has introduced since its financial difficulties began in 2008.

Economy Minister Luis de Guindos said the new «bad bank» would be up and running by the end of November and will be controlled by the central bank but would also involve the private sector.

He said the measure was chiefly aimed at unburdening banks of their bad investments so they can concentrate on managing people’s savings and investments and get credit flowing again into the ailing economy. The bad bank would be able to bring some of the real estate assets – such as unused land and unsold houses – back onto the market.

The reform comes as Spain battles to convince investors it can handle its finances and avoid following Greece, Ireland, Portugal and Cyprus in requesting a government bailout

Spain’s banks have an estimated 184 billion euro ($232 billion) in problematic real estate loans and investments following the collapse of the country’s property market in 2008. Concerns about the sector pushed Spain in June to accept a 100 billion euro loan from the other 16 countries that use the euro to spend on rescuing banks.

De Guindos gave no indication as to how much or what type of toxic assets the new bank would take on or at what discount they would be bought from the troubled banks. The creation of the bad bank was among conditions of the eurozone’s loan package.

The minister did say the new institution would have between 10 and 15 years to sell off those assets and the Bank of Spain would decide the value of the toxic assets.

«We’re laying the basis to avoid a repetition of such a crisis in the future,» the minister said at a news conference after a Cabinet meeting.

De Guindos said that given that the new entity would only be dealing with those banks that have been bailed out, it would be managing a figure considerably smaller than 184 billion euro, though he declined to say how much it would amount to. So far, eight banks have been taken over.

Analysts were not immediately impressed and said the reforms were short on detail.

«The reform is a step in the right direction but there is still a lot to do,» said Carles Vergara, Professor of Financial Management at Barcelona’s IESE Business School.

«There are several elements still in the air, especially with regards to the bad bank; the value of the assets and which entities are viable and which are not,» he said.

Javier Flores, an analyst in Spain with Asinver investment group said it was still not clear what methodology would be used to establish the prices of the assets.

«Information is lacking and once again it appears to be a half-baked reform,» he said.

Flores said he was not convinced by the government’s insistence that tax payers would not end up footing the bill and added that, in that case, the reform could prove to be another step toward an eventual bailout.

Spain’s «bad bank» will be the eurozone’s second – the first was set up by Ireland in 2009.

However, Irelands’s National Asset Management Agency or NAMA, has not been the success it was billed to be as soaring bank-rescue costs ruined the country’s creditworthiness and forced it to negotiate an EU-IMF loan rescue in November 2010.

NAMA paid its banks just 30 billion euro ($38 billion) in government-backed bonds for assets originally valued at 74 billion euro, forcing the banks to record 44 billion euro in loan write-offs – which led to more rescues.

By 2011, NAMA reported a profit of 247 million euro as it cashed in some of the best of the property it seized from the U.K. and the U.S. But the state-owned agency plans to hold most Irish properties and development sites for up to a decade in hopes that the market will rebound first. It originally envisaged a 1 billion euro profit over its expected decade-long lifetime, but now says a break-even is more likely. Analysts expect losses.

De Guindos said Spain’s new institution would be financed mostly by private investment with additional money from Spain’s bank restructuring fund, or FROB. He said only a small amount would come from the eurozone aid package.

De Guindos also announced the Bank of Spain would be given greater powers to intervene in earlier – and close down if necessary – banks with financial problems. The central bank would be able to intervene in banks that meet solvency requirements but are uncertain of fulfilling them in the future.

He said that in line with European banking rules, the government was raising the core capital requirements – the level of high-quality assets a lender has to hold to protect it from economic shocks – to 9 percent for all banks.

Results of a comprehensive audit of all Spanish banks are expected next month.

The reforms comes as Spain got yet another dose of bad news Friday as the Bank of Spain reported a net capital outflow of 56.6 billion euro in June, topping an exit of 41.3 billion euro in May.

It said the outflow for the first six months of 2012 was nearly 220 billion euro, compared with an intake of 22 billion euro for the same period last year.

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