Rabu, 28 Maret 2012

Items of interest on Spain ( is a bailout being pushed upon them ) , Greece ( greeks leaving cities to return to the countryside ) , the UK contraction in GDP worse than at first read and EU firewall to be increased by the end of the week

11.45am: In Brussels, EU officials have denied claims that Spain may have to seek financial help.

European Commission spokesman Amadeu Altafaj has just told a press conference that media reports that Spain may seek bailout aid are "completely without foundation".
Altafaj added that the private sector should be able meet most of the cost of recapitalising Spain's banks. As we flagged up at 9.23am, analysts fear that the Spanish government will be unable to pick up the bill.
For background, there were reports in a number of Spanish newspapers yesterday that the EU was putting pressure on the Madrid government to accept aid. These claims were rebutted by commissioner Olli Rehn last night.
9.23am: Right on cue, Citigroup has undermined Monti's claim that worst of the eurozone crisis is behind us, by predicting that Spain may need international help by the end of 2012.
In a research note published this morning, Citi warned that Spain could only avoid a bailout through "more radical measures" than are currently on the table. It warned that the Spanish government may lack the financial resources to recapitalise its banks.
Spain's banks reportedly hold €2.4 trillion of debts on their books, leaving them extremely exposed to losses following the collapse of the country's property sector in recent years.

11.11am: News in from Athens, where our correspondent Helena Smithsays newspapers and television channels this morning all reporting that young Greeks hit hard by the financial crisis are fleeing from the cities to the countryside.
Some commentators are describing it as a mass exodus. Helena writes:
It's official: Greece is undergoing a mass internal migration as a result of the economic crisis that has engulfed the nation since December 2009.
After years of being spurned for the bright lights of big cities, rural areas are making a comeback as unprecedented numbers of unemployed young Greeks move en masse to the countryside encouraged by government stipends to cultivate tracts of land that have been left untended for years. A survey conducted at the behest of the Agricultural Development Ministry by the polling firm Kapa Research found that more than 1.5 million Greeks were considering relocating to rural areas with one in five already having made the move. Around 75 % were under the age of 44 – the group worst hit by joblessness in a nation where more are now out of work than employed.
A €60bn state-funded program offering plots of land at cheap rates to would-be farmers had been snapped up, said the agriculture minister Costas Skandalides, announcing the findings. The survey showed that the vast majority were willing to earn less for a better quality of life. "More than one million Greeks, most with university and even post graduate degrees, are rejecting prototypes to go back to their roots convinced that it will lead to a better quality of life even if there are less trappings," he averred. "We are witnessing a profound shift in Greek society and lifestyles the extent to which we have yet to grasp."
In the northern Greek city of Thessaloniki, more than 4,000 trained agronomists have rushed to sign up to an initiate that has seen the town's main university rent out plots of land for cultivation at affordable prices. "I will go and grow rice and cotton," Alexandra Terzidou, one of the graduates, told Skai news. "It's a great opportunity."

Prior to the research academics had poured over anecdotal evidence of the migration but had been unable to pin point just how big it was.

9.30am: Breaking news -- the UK economy shrank by 0.3% in the last three months of 2011, not 0.2% as previously estimated.
8.55am: EU president Herman Van Rompuy ‏has announced over Twitter that Europe will take a final decision on the size of its firewall by the end of this week:


Earlier we mentioned how Citi top economist Willem Buiter had a big warning about Spain.
We've now seen a copy of the report, and get tell you some more details.
Here is our bullet-pointed summary of the report:
  • Spain's public finances are worse than officially stated. Already there have been upward revisions to debt-to-GDP, and the number could rise as high as 90% when all the various categories of debt are added together.
  • The fact that GDP assumptions are badly missing estimates makes this all worse.
  • Although Spain's banks get a lot of attention for being ugly, the non-financial sector is doing badly as well. Households are overleveraged.
  • The new government delayed reform legislation too long, missing the 'honeymoon period'.
  • Spain's PM Rajoy is alienating partners in Germany and France by announcing revised deficit targets without consultation.
  • The decline in Spanish land prices is not over.
  • The spending problems in various autonomous regions are big, and the central government cannot control them

  • Buiter's Conclusion:
    Spain is likely, in our view, to be pushed into a troika (EC, ECB, IMF) programme of some kind during 2012, possibly by losing access to market funding on affordable terms, but more likely by the ECB making a programme for the Spanish sovereign a condition for continued willingness to fund the
    Spanish banks, which are currently the main buyers of newly issued Spanish sovereign debt. The existing and likely near future EFSF/ESM and IMF financial facilities are unlikely to be sufficient to both fund the Spanish sovereign fully and leave enough financial ammunition in reserve to deal with
    possible sovereign financial emergencies in Italy or in the ‘soft-core’ of the euro area. The Spanish sovereign would therefore likely continue to fund itself at least partly in the markets even if it comes under a programme. To ensure market access by the Spanish sovereign, the same combination of cheap ECB funding for periphery banks and financial repression of periphery banks by their national authorities that has been effective in lowering sovereign yields since the first LTRO is likely to be required.


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