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The Spanish implosion in breathtaking
in every way: Human Flight, Capital Flight, Real Estate,
Employment, and Taxes. The cost
of a full bailout is now €300 billion, up from
a preposterously low
€30 billion projection in June.
€300 billion should not be
shocking given my statements on June 9th in Bailout Lite? There's
Really No Such Thing; €30 Billion Needed?
It's Now €100
Billion; Contagion of Economic Idiocy.
A few days ago Spain was purportedly going to need another €30 billion to €70 billion to recapitalize Spanish banks. I suggested the amount would be at least triple that...triple the upper end of
the reported amount. Bear in mind I am just guessing.
However, history shows that I am more likely to be on the low end than the high end.
As with Greece, every economic number from Spain is revised to the downside, month in and month out. For now, the EU economic wizards will likely concoct
a number just under that alleged
"upper limit". My best guess is €90 billion. Then within six months, possibly as soon as the money is handed over, more problems will surface, more
meetings will take place,
and still more money will
be stolen from Spanish taxpayers and handed over to
the banks and bondholders.
Mish the Optimist
"Within six months"
I said. It took three months, proving once again that I tend to be optimistic on such problems.
By the way, with revised sovereign bailout estimates already hitting my €300 billion target, it is best to start thinking in terms of half-a-trillion or
more.
Breathtaking Implosion in Every Way
I get links from Bran who lives in Spain nearly every day. I do not have time to translate them
all. Here are some links from the past few days with brief
comments from Bran.
·
Social Security Fund Runs Out of Money: Social Security pulls from its reserve
fund for the first time, using
it up almost entirely. Article states there is nothing to stop the government from selling the main SS fund investment to meet payments. Article also notes
the fund is invested heavily in Spanish sovereign debt, to the tune of €67.948 billion.
·
Cost of Unemployment
Benefits Soar: Unemployment benefit cost predictions blow out. The government prediction was -5%. Reality was +5.4%
·
Price of Gasoline Soars: Gasoline prices up 75% in the last 4 yrs
here and was not cheap to
start off with!
·
Massive Mortgage Debt: Household debt is €848.222 billion,
76.9% of which is mortgage debt.
·
Capital Flight: Clients pull 15.6% of deposits
at Novagalicia in the
first half.
Early this morning I posted Spain VAT Hike Largest
In History; Stunning Ineptitude Will Make History Books.
I have near-endless material
on Spain. Here are some additional links, this time from mainstream media.
Brinkmanship Over Bail-Out Terms
Ambrose Evans-Pritchard at The Telegraph
notes Brinkmanship as Spain warns over bail-out terms
Spain has issued a veiled
warning that it will not accept a full bail-out
from Europe if the terms
are too harsh, a move that would paralyse the European Central Bank and call the euro’s
survival into question.
In an escalating game of brinkmanship, Spanish finance minister Luis de Guindos said his country is not yet willing
to sign a Memorandum giving up fiscal sovereignty to EU inspectors.
“First of all, one must clarify the
conditions,” he told
German newspaper Handelsblatt.
Mr de Guindos said the crisis engulfing the region is larger
than any one country and warned north Europe not to scapegoat Spain.
The warning comes as German
Chancellor Angela Merkel leaves
for Madrid for talks with
premier Mariano Rajoy to thrash
out the conditions of a full sovereign rescue of up €300bn (£238bn), beyond the €100bn bank rescue already agreed.
It emerged today that Spain’s social security system has raided a rainy-day fund to cover state pensions for the first time as deepening recession erodes contributions.
Meanwhile, official data shows that
the toxic property loans of Spain’s four nationalised banks have reached €75bn and are rising
faster than feared. Bankia’s “potentially problematic” loans are €42bn. The biggest
surprise is a 50pc surge
in bad debts to
€9bn at Cataluyna Caixa since January.
Non-payments on mortgages
have doubled.
Net claims on Spain through the ECB’s
Target 2 payments system have reached
39pc of GDP.
“The build-up in central bank
liabilities is
explosive,” said Nomura’s
Jens Nordvig.
Spaniards Pull Out Their
Cash and Get Out of Spain
The New York Times reports Fears Rising,
Spaniards Pull Out Their
Cash and Get Out of Spain
“The macro situation in Spain is
getting worse and worse,” Mr. Vildosola,
38, said last week just hours before
boarding a plane to London with
his wife and two small children.
“There is just too much risk.
Spain is going to be next after
Greece, and I just don’t want to end up
holding devalued pesetas.”
In July, Spaniards withdrew
a record 75 billion euros, or $94 billion, from their banks — an amount equal to 7 percent of
the country’s overall
economic output — as doubts
grew about the durability
of Spain’s financial
system.
The deposit outflow in
Spain reflects a broader
capital flight problem that
is by far the most serious in the euro zone. According
to a recent research note
from Nomura, capital departing
the country equaled a startling
50 percent of gross domestic
product over the past three months — driven largely by foreigners unloading stocks and
bonds but also by Spaniards
transferring their savings to foreign banks.
More disturbing for Spain is
that the flight is starting to include members of its educated and entrepreneurial elite
who are fed up with the lack of job opportunities in a country where
the unemployment rate touches 25 percent.
According to official statistics,
30,000 Spaniards registered
to work in Britain in the
last year, and analysts say that this
figure would be many multiples higher if workers without documents were counted.
“It seems as if everyone
I know in Spain is getting
on an easyJet to come to London and open a bank account,” said one such banker, who spoke
on condition of anonymity, citing
his company’s policy.
That is what Mr. Vildosola did before he took
the more drastic step of moving his family
to England.
“It’s sad,”
he said. “But I just don’t think there is
a future for me in Spain right now.”
Key Question
The key question now regarding
Spain is whether human and capital flight is excessively pessimistic or simply the recognition phase that
things far worse are coming.
Sadly, I believe the latter. The reason is Spain needs to do a number of things
and it is on a track to do none of them.
Five Things Spain Needs
to Do
1.
Exit the Euro
2.
Institute major changes in work rules
3.
Revamp its pension system
4.
Lower taxes in general, especially
corporate income taxes
and the VAT
5.
Write off bad property
loans
How many of those things is Spain doing? The answer is zero. Actually,
the answer is negative given Spain is foolishly hiking taxes, exactly the wrong thing to do.
The situation in Spain is hopeless.
Expect more capital and human
flight.
Read more at http://globaleconomicanalysis.blogspot.be/2012/09/full-sovereign-bailout-hits-300-billion.html#ycgo4CFukBMi6dwt.99
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