Could Spain Be Next?

[threegee]

In a report released on Friday, Spain, BarCap suggests, in its wonderfully deadpan way, has a "tricky" spring ahead. The report says that the Spanish government needs to raise €30bn in the first four months of 2011, at the same time as the Spanish banks need to raise €40bn.

Bypassing Portugal and going straight for Eldorado? April they say, but then I thought all the signals pointed to an Irish crisis next February and not right now.

As a condition of the Irish - ("There is absolutely no truth to a rumour concerning external assistance" -- Irish ministry of finance) - bailout, it seems bondholders will get back less than their original investment. That's right and proper, and if only Alastair Darling had had the guts to do this we wouldn't be in quite the mess we are in. But, therein is a long-term benefit. In the short-term it will only bring on the inevitable as bondholders - who by the very nature of the product hate losing money - start being picky about which bonds they buy. Contagion is the word I'm looking for, and it's coming to (another) country near you quite soon!

[Malcolm Robinson]

GGG,

I still cannot get my head around Italy not being the fall guy right from the start. (Maybe it has something to do with the quality of ex-pats it attracts?)

What must now take place are haircuts for indebtedness and once that starts there will be a stampede to get on board.

As for bondholders well the ECB hold about 66 billion euros of toxic debt now and say they will be increasing that figure. So bondholders can effectively use the ECB as a put option!

The whole thing is madness placing the responsibility of maintaining a corrupt banking sector on the population as a whole.

If Darling hadn't signed up to that last minute financial arrangement we wouldn't be seeing 8 billion squid disappear across the Irish Sea! It boils down to cutting senior citizen provision here to help very highly paid public sector staff across there! Someone needs a lifetime pass to the Tower of London!

[Malcolm Robinson]

A statement made by Spain's Central Bank chief Miguel Angel Fernandez Ordonez:

'' The outlook for a gradual recovery is surrounded by uncertainties….in an environment where financing conditions must remain restrictive, and in which the public and the private sector have a pressing need to pay off huge debt, we can expect the pace of recovery in household consumption to slow versus the first half of the year.''

Exposure to Spanish debt among EU banks is far higher than that to any other troubled EU Sovereign. There is around €460 billion (£390 billion) of bank assets tied up in Spain. If we add the figures for the Irish bailout and something akin for Portugal we see the whole of the EU stability fund wiped out. Also Spain's economy represents about 12% of Euro GDP more than Ireland, Greece and Portugal combined.

The EU will soon have to decide whether to bring everyone under a full fiscal union or allow defaults on debts, either way a poison chalice!

Thing is the rest of the Eurozone banks, Germany, France etc. are hog tied to Spain because of property exposure. Just like the UK (RBS and Lloyds) if the Irish default on their property portfolios that will inevitable mean more hand-outs needed from George and Merve, providing bailout money could be seen as a cheaper alternative. Even if it is sheer madness and short-termism par excellence! We also seem to be holding quite a bit of Spanish property debts and Barclays is especially exposed to Italian property debt!

Spain needs to refinance a huge 300B euros by 2013 with just under 200B in 2011. Given their bond yields are heading northwards at an alarming rate can they do so independently………..?

This whole rotten pack of cards is entirely down to the banking sector deluding people they were wealthy because they could handle more and more debt with the sole aim of increasing banking sector pay-outs, lunacy! The people who did this should be locked up, the people who failed to regulate this should be locked up and the politicians who oversaw the whole thing should be locked up too!!!!! We are now taxing future generations and taking away crumbs of comfort to senior citizens to pay for banking bonuses, it's immoral!

[Malcolm Robinson]

We now see different EU mechanisms and entities being created almost daily as the EU and ECB try to put up some sort of illusion of normality. It wasn't that long ago most EU banks passed the new stringent bank stress tests, what a croc that has been proved to be!

Looking at the Irish bailout it is so full of holes it can't hold water! The interest on the money supplied by the EFSM/EFSF (see above!) is about 7.5% so better then Irish bond yields but pretty expensive for the Irish economy which it purportedly is trying to help! The real amount of external aid is about 2/3rds of what is being talked about in the press and probably isn't enough as one smallish Irish bank needs about 10% of it. Next we see a raid on future pension provision to make up the balance, maybe future pensioners might like to ask why their banking sector isn't being taxed to the same degree as they caused this by miscalculations of values and rates going forward, i.e. their job! Lastly the ECB has stated it is withdrawing its support packages Jan 2011 so not too far off. Will the Irish, Greek, Portuguese, Spanish and Italian difficulties be sorted within the next few weeks?

The Greek 3 year loans are now to be extended up to possible 11 years, in other words that's a haircut! Originally attracting a 5% interest rate that has now been changed to 5.8%? If she was going to have problems paying the 5% rate what is the point of increasing it? The debt this country has now makes her insolvent in any meaningful way!

The bond markets are the real barometers for this stuff and whilst Irish and Greek bonds have been getting more and more expensive for their respective countries, as anyone would expect, so too are Spanish and Italian bonds!

Early this year Spain said the restructuring she had done, especially with the small banking sector, cajas, meant it had stabilised the situation and could proceed with a degree of optimism. With her bonds now attracting over 5% rates she is getting dangerously close to default territory! Her economy cannot sustain rates much higher and even this figure will dent her competitiveness in international trade. Adding the internal banking and property problems she has as well as a 20% unemployment rate exacerbates an already dangerous situation! Being unable or unwilling to categorise her banking liabilities will mean international investors will shy away from Spanish investment right at a time she needs them!

The only possible answer using current methodology and thinking is to allow a much longer period for debt repayments and allow some countries to take haircuts on their bond yields. Course other countries will inevitably cry foul if they cannot get the same options! I still think if the Euro is to survive we will see Club Med Europe and an industrialised northern Europe using Euros but with far different foreign valuations.

[Malcolm Robinson]

Worth keeping an eye on Belgium……….their bonds are skyrocketing today!

More likely to come from outfield I think GGG.

Spain selling 30% share in El Gordo, her huge national lottery, things must be bad!

[Malcolm Robinson]

Looking around outfield Hungary should be of concern. Not directly involved but like the Yanks and their subprime toxic debts things could get pretty ugly very quickly. With most of the Hungarian mortgage paper in Swiss francs and a very high percentage of commercial paper any upward rise in exchange rates between the Swiss and Hungary will almost inevitably lead to defaults. Like gold Swiss francs are seen as a safe haven and they are only going one way at the moment. As Austrian banks have bankrolled a lot of this cross boarder fiscal manipulations any defaults will have a negative effect on them and Merkel and the ECB will consider that too close by half!

Trichet has now passed the ball quite firmly over to the politicos; he must be sick and tired of saying one thing only to have the politicians taking a completely different line within days and hours sometimes! So an independent ECB not quite me thinks. Also they are now hiding their toxic bond purchases for some reason, probably trying not to scare the markets with the amounts which at some point will either have to be repaid or defaulted on.

Interestingly the Yanks not quite so bashful have announced that they have just bought upwards of 2 billion Euros worth of these toxic bonds so while the Europeans are trying to go down austerity paths the Yanks seem content on printing more and more dollars to paper Europe with? Maybe they don't want to see the same fiscal connectivity between a toxic Europe and the States as the scenario just played out the other way around!

[Malcolm Robinson]

There is quite a new twist occurring at EU headquarters with reference to the ECB and their 'need' to buy EU peripheral toxic debt.

We saw Italy and Belgium ask for special EU bonds which indebted member countries could draw on for funding, that was quashed or supposedly so. Trichet then threw his dummy out of the pram and told his EU bosses if they insisted on interfering in the 'independent' ECB then take the whole thing on.

The Irish Times, of all papers, has just broken a story about how ECB reserves are to be bolstered by increased member state contributions and a 100% increase at that! Now a cynic might say that is needed because of the level of toxic bond purchases by the ECB, in other words they have bust themselves buying Greek, Spanish etc. etc. debts with no hope of repayments only defaults.

If we look at how ECB funds are put together, and as we slap ourselves on the back for not being a Euro member state, we clearly see a very likely funding implication for the UK. Euro member states contribute about 70% of the required funds with non-Euro but still EU states paying into the rest. The former is by and large Germany the latter is by and large us.

[Malcolm Robinson]

Here we go but as it stands only Euro members will contribute.........

http://uk.reuters.com/article/idUKLDE6BE0B820101217?pageNumber=1

[Malcolm Robinson]

Big bailouts need bigger funds.........

http://www.telegraph.co.uk/finance/economics/8207710/European-Central-Bank-arms-itself-for-Spanish-crisis.html

[Malcolm Robinson]

Interesting to see if France get their bond issue away today as there is talk about a possible downgrade on their AAA rating.......

[Malcolm Robinson]

The carry trade pidgins in Eastern Europe look likely to come home to roost in 2011.

Hungarian defaults a distinct possibility effecting mainly Austrian banks.........

[Keith Scantlebury]

Malcolm do you ever get the feeling that you are talking to yersel. All the posts on here , bar 1 , are from you ...... Maybe you are just a frustrated european finance correspondent. lol. never mind, there are people you can be referred to that can sort you out, until then just carry on bashing the keys, youre a trooper lol.

[Malcolm Robinson]

Malcolm do you ever get the feeling that you are talking to yersel. All the posts on here , bar 1 , are from you ...... Maybe you are just a frustrated european finance correspondent. lol. never mind, there are people you can be referred to that can sort you out, until then just carry on bashing the keys, youre a trooper lol.

Keith, :lol:

Yes I get that feeling but I look at the page views and someone is reading this stuff. When I stopped commenting on the Greece and the EU thread I was surprised by the amount of people who asked me why because this was about the only way they got to hear about this stuff.

I will just keep hitting the keyboard and leave it up to God's grace if any of it makes sense.

[Mr Darn]

Keep it up, without someone posting there will be no news!

When we have an opinion we'll butt in, believe me!

[Malcolm Robinson]

Thanks for that Mr D, much appreciated.

As for expressing an opinion, of that I have no doubt!

[Malcolm Robinson]

Course feels like this sometimes!!!!!!!! :lol:

[Malcolm Robinson]

More likely to come from outfield I think GGG.

Slovakia could be the spark as it mulls over coming out of the Euro............

[Malcolm Robinson]

Worth watching the Portuguese bond auctions today.........

Also Greek insolvency..........

These special instruments the ECB has evoked to deliver what are really bailout packages looks to be about as much use as a chocolate fireguard! The markets seem to be testing them at every sovereign bond auction.......

The Yanks have gone for the money printing option unable politically to go for anything else due to their immense debt figures while Europe has gone for austerity measures.......who is right, probably neither but time will tell!

[Malcolm Robinson]

Spain has cancelled its planned bond auction for January 20, and instead will plough ahead with syndicated issuance. Not to be left on the shelf so has Belgium and Portugal.

So rather than face not getting their bonds away in public they have gone for a behind closed doors offering……..who might be buying and what premium they demand is now open for speculation but it will impact onto these bonds next time around!

[Malcolm Robinson]

A Danish bank, Amagerbanken, has just gone belly up and whilst in itself not a massive threat to the European banking system there are a couple of warning signals.

It passed last year's European banking stress tests even though it had been effectively been bailed out by the government making it a zombie.

The real difference now is that senior bond holders and depositors won't get 100% protection in fact they are estimated to lose about 41% of their holding.

If this is replicated throughout the EU banking sector, and probably one more will start the bonfire, nobody in their right mind will hold bonds in any of the peripheral Eurozone, irrespective of the yields.

[tomtom]

Will Spain be next? - almost certainly if the proposed disruption to air travel goes ahead and I for one will never forgive them - so many holidays ruined over the years, the last one you may remember just before Christmas last year - this one resulted in a 5 hour delay getting back from Tenerife.

[Malcolm Robinson]

Portugal looks to be on the skids.........PM forced to resign due to austerity measures. Might signal another cap in hand to the ECB/IMF.

[Malcolm Robinson]

The 3rd largest Spanish savings bank Banco Base says it has asked for €1.45 billion in state funds to meet 'new local capital requirements'. If anyone believes that will be the last of it remember Ireland asked for about the same to begin with and ended up at around €45B and increasing daily!

The EU bust is coming and could be apparent as early as this summer. Portugal is issuing 1 year bonds at eye watering yields and will have to roll them over at whatever they can get as interest rates next year. Greece and Ireland are bust, Portugal and Belgium hanging on by their teeth and Spain and Italy bankrupt in all but name.

The Eurocrats have come up with yet another rescue vehicle, can't even remember the acronym of this one, but a lot of Euro zone members are starting to refuse to pay up their shares so the ECB has made it a 4 year rolling requirement. Markel has been shafted in one of the German local elections and that's before their constitutional court has ruled on the legality of Germany, in essence, bailing out the Euro zone.

Expect to be spending quite differently valued northern and southern Euros on holiday next year!

[threegee]

Ireland's turn for fun tomorrow!

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2011/03/the_unbelievable_truth_about_i.html

The only common sense thing to do in this situation is default and drop out of the Euro. Something Greece should have done, and will have to do sooner or later anyway.

If Ireland flunks this then they deserve what they get - i.e. decades of stagnation and ever erroded living standards. Unfortunately the UK taxpayer doesn't deserve to have to absorb yet another megadose of politician's proflicacy. The idiots who threw yet more UK taxpayer's money away should be held to account. That's particularly true when we've already funded Ireland's boom years with the loss of jobs that would have come to the UK (and particularly our part of the UK) if Ireland hadn't been undercutting us on taxes. Extracting concessions to a level playing field on corporate taxation of foreign multinationals should have been part of any loan agreement anyway. Not to do this was a betrayl of the high unemployment regions in the UK.

Suppose we just have to hope that the new Irish government doesn't do the sensible thing, at a time when they have their best opportunity to do it and blame it on the former bunch.

[Malcolm Robinson]

£24 billion...........a mere bagatelle!

http://uk.news.yahoo.com/18/20110331/tbs-irish-banks-need-new-24-bn-euro-bail-5268574.html