A Bad Bank in Spain

In Spain it was known that a housing bubble would explode sooner or later. The houses were valued very high and with unrealistic prices for banks to give the credits.

In 2004 and in 2006 the Bank of Spain told to Caja Madrid:

“The property risk is growing by 55% (…) and it will continue increasing upt to very high rates”

Then the housing bubble finally exploded and Spain fell in a deep crisis.

Now in the last quarter of 2012, the crisis seems to have no solution and Brussels has imposed to Spain to create a “bad bank” which will be paid with public money.

Brussels validates the reforms of the Government of Spain and the International Monetary Fund (IMF) has recommended liquidating the non-viable banks as soon as possible.

The International Agency, the Commission and the ECB give the approval to the bad bank and want it to be operative the first of December.

The EC and the ECB ensure that the reforms which Spain agreed to comply if it request the rescue is “in line” with expectations. But FIM believes that more efforts have to be made Sareb (the bad bank that will manage the property portfolio of toxic banks) ready to open by the end of November.

Noemí Gómez 

Moody’s said to downgrade Spanish banks

Moody's is reportedly set to downgrade 21 Spanish banks according to a Spanish economic daily, thereby casting another blow to the banking industry in Europe.

The move wouldn’t come as a surprise -Moody’s has been poised for the rating cut since February, when the agency announced it was planning to downgrade 122 financial institutions by May. The ratings of 114 banks from 16 European countries were put under consideration, with the downgrade risks mainly relating to the eurozone periphery.

The rumors of a possible Spanish downgrade come days after the agency cut the ratings of Italian banks. On May 14, Moody’s dropped the debt rating of 26 financial institutions, including the giant UniCredit, as Rome struggles with recession, tough austerity measures and 1.9 trln euro of outstanding public debt.

The banking sector across Europe is very much under pressure this year. In April, the IMF issued a report saying that the total assets of 58 largest EU banks are likely to be decreased by 7% (2.6 trilion dollars) by the end of 2013. By May, the ECB conducted two long-term refinancing operations (LTRO) totaling 1 trln euro to stimulate banks and economic growth. Though Moody’s insists that the support from the European Central Bank lowered the default risk for many of the banks, analysts and market players are waiting for the LTRO III.

Jon Mikel

THE SPANISH STOCK MARKET FELL BY 1,28 PERCENT FOR A CUT IN GROWTH PROSPECTS IN CHINA

The Spanish stock market fell 1.28 percent today and lost the level of 8,500 points affected by the decline in international markets after China revised their growth predictions for this year and come down the activity in the services sector euro zone .

With the risk premium by 313 basis points, the main indicator of the Spanish market, the IBEX 35, has dropped 109.90 points, or 1.28 percent, to 8,453.50 points. The annual losses rise to the 1.32 percent.

The main European markets recorded minor losses, as the Frankfurt fell 0.79 percent,Milan, 0.68 percent, the Euro Stoxx 50 index, the 0.64 percent, London, 0.61 percent,and Paris, 0.39 percent.

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Although China enhanced the activity in the services sector, the reduction of GDP of the Asian country and warnings about problems with the Greek debt-conditioned the bad start of the Spanish stock market session, in less than an hour lost about 2 percent and approaching to 8,400 points.

The lowering of growth projections China this year, from 8 to 7.5 percent, sowed losses among Asian centers this morning: Hong Kong fell 1.4 percent and Tokyo 0.8 percent.

Jon Mikel Cruz

Standard & Poor's downgrades Greek debt again

Standard & Poor's rating agency has classified Greek debt as in "selective default" following the deal it made with creditors to reduce its debts. The rating agency says the terms of that deal triggered the latest downgrade. Greek debt already had a "junk" grade rating from the agency.

Separately, the European Central Bank said it was suspending the eligibility of Greek bonds as collateral for loans to commercial banks. The ECB explained that by the middle of next month it would start to accept the bonds again, because a programme for eurozone nations to provide supplementary collateral to insure the ECB against losses is due to come into effect.

Banks and other financial firms are being asked by Greece's government to take a 53.5% loss on their Greek sovereign bonds. The plan was agreed by the Greek parliament last week, and, if backed by Greece's creditors, it would wipe out 107bn euros of the country's debt.

Standard & Poor's said that when the debt exchange was complete it would assess Greece again and possibly raise its rating. The Greek government said S&P's move had been expected and added it would not hurt the banking industry.

Last week, rival credit rating agency Fitch also downgraded Greece's debt.

Xabier Sanchez

Rodrigo Rato must restrict his wage in a 75%

The Spanish government has decided to restrict the wage in the savings bank that received state economic aid. This rule would affect directly to the rulers of these savings bank.

For example, the president of Bankia, Rodrigo Rato, must reduce his wage about 75%. Francisco Verdú, managing director in Bankia, also must see reduced its wage from 2.26 milion € to the fixed maximum, 600,000 €. That's because this bank received state economic investments due to the FROB 1 plan.

But they are not going the only affected ones by the measures announced by the government. José María Castellano, president of Novagalicia, entity that is controlled in a 90% by the state, must restrict his salary in 600,000 €, until 300,000 €. The managing director of NCG, César González Bueno, would do the same.

Also, the main responsible of Catalunya Caixa, saving bank controlled with a 93% by the state, Adolf Todó is over the limits of the government. He gets 1.55 milion € every year, even if the limit is of 300,000 €.

The executives of Unnim, the third nationalized entity are in the same way. Jordi Mestre, its president, gets three times the quantity fixed by the government.

Banca Cívica also has this problem; both co-presidents Antonio Pulido and Enrique Goñi get 900,000 per year. This adjustment will be smaller for Carlos Egea, president of BMN, whose wage is 450,000 € per year.

Xabier

Davos 2012: Soul searching at the World Economic Forum

Four years into a brutal recession that has left 200 million unemployed around the world, and with protest movements occupying public spaces in western cities, there is clearly some soul-searching going on.

Wednesday's programme in Davos began with a debate on whether 20th-century capitalism is failing 21st-century society. It notes that many of the indicators of economic and societal health are going in the wrong direction.

So, the good news in Davos is that the right questions are starting to be asked. Politicians, even right-wing politicians like Bismarck, eventually came to the same conclusion than Karl Polanyi: that capitalism in its pure, unadulterated form was unsustainable, and that it could only be made to work through deep-seated reforms.

The extent of the unease about today's toxic mix of unemployment and inequality was demonstrated in a straw poll of those attending the debate on capitalism showed that 40% thought it was failing 21st century society and 20% thought it wasn't.

The debate was somewhat one-sided: Sharan Burrow, general secretary of the International Trade Union Confederation was pitted against Brian Moynihan, chief executive of Bank of America, David Rubinstein, managing director of the private equity firm Carlyle, Ben Verwaayen, chief executive of Alcatel-Lucent and Raghuram Rajan, economics professor at Chicago University.

Burrow's view was that corporations have too much power, that capitalism was eating itself through high unemployment, the highest levels of inequality since 1930 and tax avoidance. The other panellists begged to differ. Verwaayen said corporations had too little power and that the key to the future was innovation and job creation rather than job security.

Rajan said globalisation and technological change was increasing the returns to talent. Moynihan said the banks reflected society, warts and all. Rubinstein, with a nod to Churchill, said capitalism was the worst system going, apart from all the others.

Conclusion: those running the global economy know there is a problem but, since they are doing well out of the system personally, lack the incentive to do anything about it.

Xabier

GERMANY GROWN 3% IN 2011 AND REDUCED ITS DEFICIT TO 1%

German Gross Domestic Product (GDP) grown 3% during 2011, and its public deficit was only 1% of GDP, despite of debt crisis and world’s economic weakness.


Statistical office (Destatis) remembered today that german economy grown 3.7% in 2010, and that the GDP was reduced 5.1% in 2009.

Descent of that 1% will allow Germany to observe for first time in three years the limit of 3% that establishes euro’s stability agreement. Germany break that agreement in 2010 (4.3%) and 2009 (3.2%).

The office said that thanks to the good national situation, Germany got the last year to reduce its debt.

Last year, German state, federate state and town’s red numbers were 26,700 million euros, but two years ago they were 105,860 million euros.

German economic institutes say that probably the weakness of the crisis, and debt crisis in euro area will affect Germany. That effect will do that Germany only grows 0.5% in 2012.


Erik Rios Salazar

France downplays rating downgrade

French Prime Minister, François Fillon, has defended french government's economic policies after knowing the decision by Standard & Poor's to downgrade the credit rating of France.

Standard and Poor's said that Europe's austerity and budget discipline were not enough to fight the debt crisis.

Mr Fillon told a news conference that if France was in the firing line, it was primarily because of its exposure to the crisis in the eurozone. He has said that this decision constitutes an alert which should not be dramatised any more than it should be underestimated.

It was not government policies that were under attack from the rating agency and so those economic policies would be kept, with the goal of cutting spending and bringing the annual budget back into surplus by 2016.

German Chancellor Angela Merkel also spoke on Saturday, saying Europe still had a long road until restore investor confidence, after the multiple credit rating downgrades of nine eurozone countries in total.

On Friday, Standard & Poor's said France was being downgraded one notch, to AA+. The country still has a top AAA rating from the other two main ratings agencies, Moody's and Fitch.

Standard & Poor's also said that Italy, Spain, Cyprus and Portugal were cut two notches and Germany kept its AAA rating.

Austria, Slovakia, Slovenia and Malta were the other of the downgraded countries.

The cut in the so-called sovereign ratings of governments is likely to lead to most other borrowers domiciled in the same countries - including banks and companies - being downgraded.

Although the move has been widely expected, it is still likely to make it somewhat more difficult and expensive for borrowers from those countries to raise money, including for the governments themselves.

Xabier

What caused the eurozone crisis?

The eurozone leaders have agreed new fiscal rules, insisted on by Germany, that will limit their governments' borrowing each year to just 3% of their economies. These rules should stop the massive accumulation of debt and make sure there won't be another financial crisis.

But, they agreed to exactly the same 3% borrowing limit back in 1997, when the euro was getting ready. The "stability and growth pact" was insisted on by German finance minister Theo Waigel. So, what happened?

Italy was the worst offender. It usually broke the 3% annual limit. But actually Germany was the first big country to break the 3% rule. After that, France followed them. Of the big economies, only Spain carried out with its duty until the 2008 financial crisis; the spanish government stayed within the 3% limit every year from the euro's creation in 1999 until 2007. Not only that; of the big four, Spain's government also has the smallest debt in relation with the size of its economy. Greece, by the way, never fulfilled to the 3% target, but manipulated its borrowing statistics to look good, which allowed it to get into the euro. This irregularities were discovered two years ago.

But the markets have other ideas. So Germany, France and Italy should be in trouble with all that reckless borrowing. Well, no. Actually, markets have been willing to lend money to Germany at low interest rates since the crisis began. Spain on the other hand is seen by markets as almost as risky as Italy.

So what caused the crisis? There was a big accumulation of debt in Spain and Italy before 2008, but it had nothing to do with governments. Instead it was the private sector who were taking out loans. Interest rates had fallen to unprecedented lows in southern European countries when they joined the euro. It motivated the increase of the debt.

All that debt helped finance more and more imports by Spain, Italy and France. Meanwhile, Germany became an export industry since 1999, selling more to the rest of the world than it was buying as imports. That meant Germany was earning a lot of surplus cash on its exports and most of that cash ended being lent to southern Europe. But debts are only part of the problem in Italy and Spain. During the boom years, wages rose in the south and German unions agreed to hold their wages steady. So Italian and Spanish workers now face a huge competitive price disadvantage.

So to recap, government public debt, which has grown exaggeratedly since the 2008 financial crisis, had very little to do with creating the current eurozone crisis in the first place, especially in Spain. Spain and Italy are now facing nasty recessions, because no-one wants to spend. Exports are uncompetitive and, now, governments have agreed to drastically cut their expenses.

Xabier

PRESIDENT OF IMF: HER LAST ADVICES

Christine Lagarde, president of ‘International Monetary Fund’ (IMF) has sent a message to all european leaders asking them for ‘talk in Europe with an united voice’ and to ‘prepare an specific calendar’ that will help us to confront the debt crisis that threats to break the international economic system.

‘International economy is in a danger situation’. Lagarde said this two weeks ago, and she advise that probably the 4% of growth in world’s economy for 2012 can be less than this percentage.

Lagarde remind that this crisis in Europe ‘is a crisis based on the confidence of the public debt and on finnancial system soundness’.

President of IMF has told that investors are waiting for a simple but specific calendar. She said again that all European leaders have to talk in Europe with an united voice; she said this after she had seen the protectionism of a couple of countries.

Erik Rios Salazar

The PP will not give incentives for emancipation

The Popular Party has decided to not renew the Basic Income for the Emancipation in force since 4 years ago. The government's spokeswoman, Soraya Sáenz de Santamaría, has announced this measure in the press conference.

The Royal Decree of November 2007, that ajusted this incentive, indicated that, after 4 years, Ministry of Urban affairs had to make a follow-up and evaluation report about the implementation of the measure. The decision of maitenance, modification or abolition of the law will depend on the report.

At least 301.254 people received this compensation. 34.303 of them received it in the first half of 2011,12'8% more than in the first half of 2010.

This years budget was 364,1 milion €, but it was increased in 46,1 milion during the last year.

The Basic Income for the Emancipation came into effect in 2008 January and it was directed to young people between 22 and 30 years old that received less than 22.000€ as gross income during the previous six months.

Xabier

CHANGES IN SPANISH ECONOMY

This Friday Spain will have a new president. Today, the future president told us what kind of politics is going to use in the next four years. Here we have them.

One of his objectives is to decreese the public budget deficit in about 16.500m euros. Also he is going to decreese the expenditure of the Spanish Public Administration. He is not going to repair the redundancies of the goverment employees, he will do only in basic services. He will remove the early retirement, but he will maintain them only in special situations. It will remove the days of holiday, the famous bridges (when you take more than one day of holiday), changing the holiday days to Mondays, saying that this kind of change will be better for the Spanish economy. But not all the news are bad, because he had said that he will update the retirement pensions with the IPC (Spanish reference to calculate the increase of the contracts, etc.) the 1st of January.

The economic and the unemployment situation in Spain is really dramatic. Spain has actually more than 5,400,000 people on an unemployment situation, more or less the 23% of the total.

He is going to do three different reforms in different fields. He will reform the finnancial sector and the public sector. The future president had said that the new goverment is not going to spend more than the minimum necessary. For example, one of his important changes will be the limit who is going to put into practice to all the Spanish public institutions, in the expenditure and indebtedness. He will change the finnancial system too, reorganizing balances, and promoving the fussion between different banks. For the public administrations and the factories he will promove a reform of the IVA (it is like a tax that it is impose to commercial transaction).

Erik Rios Salazar

THE BANK EXPECTED A RETURN INTO RECESSION IN SPAIN IN 2012

The AEB employer warns that it is difficult for private consume pull the economy through containment of wages and unemployment.
Is estimated that the Spanish economy will grow about 0.5% in 2011, far short of the forecast, because it predicts a sharp drop in the fourth quarter of the year which could follow another decline in the first months of 2012.

This way, at the end of March of next year, Spain could re-enter in recession, according to forecasts of economic-financial report in December of the Spanish Banking Association.

On the hopeful side, the employer is probable to achieve the fiscal consolidation target for the deficit does not exceed 6% of PIB this year.


The AEB adds that the Spanish economy has reduced its need for financing and debt but says it is very difficult for private consumption pull the economy if you consider containment of wages and high unemployment.

Jon Mikel

EXPERTS SAY ONLY 7 BANKS MAY WOULD EXIST AFTER RAJOY'S MEASURES

Everybody is waiting for the measures that the new spanish primer minister Rajoy is going to announce before the 31st of December. Labour reform and financial reorganization for the second wave of privatizations in the Spanish financial sector. This proccess will directly afect to investers; that's why the National Commission of the Stock Market (CNMV) is asking them for inform transparently about the real value of the stockholding. The aim is to not make problems because of irregular sales.

Experts say that no spanish bank may can keep existing without a merger having less than 100.000 milion € in assets. It would mean that only seven financial institution would exist.

This proccess will start in less than 6 months from the annoncement of these measures. It will affect to the stock market, also.



Xabier

THE EUROPEAN UNION HAS A BIG PIMPLE WITH UNITED KINGDOM

The President of the European Commission, Jose Manuel Barroso, has criticized the UK´s stance for finding the better way to fix the crisis in the European Union. He has asked for a change of attitude from the UK and to its govern.
These words have gone out after a new failure for trying to find a solution at the reform of the European Union. The UK vetoed a treaty for the 27 members for the European Union, arguing it had to protect the Britannic industry and its economic interest.
Despite the veto of the United Kingdom, the President of the European Council, Herman Van Rompuy, said that he hoped to see the new fiscal deal signed by most EU states by early March.
This new deal is designed to allow closer monitoring of countries' spending, in order to prevent a repeat of the eurozone’s current debt crisis.
This attitude of United Kingdom's prime minister David Cameron's, has strained relations between his Conservative Party and the Liberal Democrat, its coalition allies at the govern.
The United Kingdom, in exchange for giving its agreement, asked for a specific protocol on financial services which was a risk to the integrity of the internal market. Criticizing this attitude, the French member of the European Parliament, Joseph Daul, said that "26 of the 27 states have shown responsibility", agreeing that "shared sovereignty is better than sovereignty taken over by the markets".

Aitor

Fitch doesn´t believe in Portugal

Fitch credit rating agency have brought Portugal's credit rating down from BBB- to BB+ and with no promising outlook.

Fitch justifies its decision because of the excessive debts in all the industries and the negative macroeconomic perspectives. Also, the agency has brought the Portuguese outlook down taking into account the European outlook and it's expected to decrease about a 3% in 2012.

Fitch believes that in the next two years, recession will make the deficit reduction plan become harder to carry out and it will be negative for the quality of financial assets. Anyway, the agency thinks that the commitment of Portugal with the plan is strong.

The expectations of Fitch is that the Portuguese debt will rise until 110% in 2011 and it will arrive to the 116% in the end of 2013. This crisis is also a risk for the financial system, that is leaving money to one of the most indebted private sectors in Europe.

So, if the Portuguese investments and work go wrong, it could mean a reduction of the credit rating. In the other hand, to fulfil EU's and IMF's program would relax the credit rating pressure and a potential raising would mean a better credit-profile for Portugal.

Bea

GERMANY'S EMPLOYMENT GROW UP IN THE THIRD QUARTER

Germany recorded in the third quarter the highest level of employment from the country's reunification in 1990, to reach a figure of 41.2 million workers, representing an improvement of 1.2% or 495,000 employees over the same period 2010, according to the Federal Statistical Office (Destatis).

However, Destatis said the increase between July and September is less than 1.3% in the second quarter and 1.4% of the first three months of the year.

In the third quarter, virtually all economic sectors experienced an increase in employment, being the most significant increase recorded in the business services sector (189,000 people), followed by services trade, transport and accommodation (138 000 people ), while 33,000 construction jobs were created.

By contrast, public services, education and health showed a decline of 10,000 jobs over the previous year, largely due to the impact of changes in military service.
Germany achieved in the third quarter, the best figure since reunification employment.

Jon

CAR SALES SINK

The cars registrations decreased 6,7% in October (57.278 units) in all regions except Baleares (+6.8%) and Canarias (+9.5%) Is the worst October since 1985 (only 45.000 units).

In the first 10 months of the year the sales of cars and SUVs in Spain go down in 19,7%

They are followed by four years in our country under one million in sales of cars per year.

GANVAM (National Association of Motor Vehicle Dealers, Repair & Parts ) says that the dealers only sell seven cars every week, 44% less than before the crisis.

Jon

SHOPPING BASKET

Because of the economic crisis Spanish people are going to spend 400€ less than last year in food. However the principal supermarkets are increasing the prices. The most expensive supermarkets are in the Basque Country, Canarias, Navarra, Cantabria y Cataluña, and the cheapest ones are located in Murcia, Galicia, La Rioja, Andalucía and Extremadura.

This means that people are not buying clothes, going to restaurants so much and things of that nature. I hope that the crisis will finish soon.

Beatriz.

The unemployment rate, the highest since 1997

The total number of unemployed people stood at 4,696,600, a record in Spain. 2010 became the fourth year that increases the number of unemployed people.
Against the number of jobs lost, last year it was five times below the previous exercise scale unemployment rate to 20.3%, the highest since 1997. 2010 has finished with the highest unemployment rate in history, nearly 4,700,000 people.According the active population survey, unemployment rate returns to exceed 20 percent after the break that occurred during the third quarter. In 2010 which has risen more unemployment has been in the construction sector, followed by industry. The number of households with all members unemployed has risen again and are now more than 1,300,000. Unemployment rose 370,100 people in 2010 compared to 2009, 8.5% higher, reaching the total number of 4,696,600 unemployed people and the unemployment rate at 20.33%, which is 1.5 points higher than the previous year according to data from the Active population Survey issued by the National Statistics Institute (INE).
The unemployment rate reached its highest level and the comparable historical series, beginning in 2001. Going back earlier, using non-comparable series, not reached a percentage of this nature since the second quarter of 1997, when the unemployment rate came to stand at 20.72%. The number of unemployed, meanwhile, is also a record for the Spanish economy.

Cynthia