Selasa, 10 April 2012

Spain's troubles coming to the forefront rapidly....

The Rain In Spain

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From Mark Grant, author of Out of the Box and Onto Wall Street
The Rain in Spain has not left the Plain
It sounds good when said and credible and positive but the problem is that it is one more absurd illusion. Spain, this morning, says the next round of budget cuts are going to come from Education and Health benefits which is all very nice except they do not totally come under the purview of the Spanish Federal government. The way that Spain is currently constructed these expenditures are mostly under the control of the regional governments and so that these kinds of promises by the current administration in Spain are wisps of cultivated air floating from Madrid to Berlin. Even if the Federal government could get the cuts accomplished it will take them months and perhaps months and months so that the headlines of what Spain is going to do has all of the substance of the milky froth atop some cup of coffee in Valencia that resembles a cappuccino.
Now Spain’s GDP is projected to be approximately $1.4 trillion in 2012 and they are missing their EU mandated target by about 5.30% which is $74.2 billion in aggregate. The fantasy of Health and Education cuts only amounts to $13 billion if actualized and they are back to the standard European tricks that the rest will come from a crackdown on tax evaders, asset sales and projected economic growth which have all of the substance of Don Quixote’s windmills. In 2011 the government of Spain promised to curtail the deficits of the Regions and they fell short by 2.5% or $35 billion. For all of Spain they promised the EU in 2011 that they would shrink their deficit by 3.2% and the reality was only 0.8% after all was said and done. To understand Spain better you should know that about 60% of the regional budgets are directed at Health and Education so that the Regions would have to cut approximately 10% of their budgets to attain the $13 billion that the Federal government is calling for and I do not believe that local politics will allow for this.
To make matters worse the Regions’ debt now accounts for more than one-third of the national debt to GDP and each and every Region is now running at a deficit. There is quite a variance here from around -1.0% in Madrid to more than -7.0% at Castilla-La Mancha. There are such strong feelings in Catalonia that the Region has threatened to take the national government to court for not respecting the laws for the autonomous regions of Spain. In an amusing footnote the CEO of Spain’s largest bank, Santander, spoke this morning in Madrid and called for the ECB to begin massive Quantitative Easing and to buy both public and private debt. Everyone in Europe wants to spend everyone else’s money, not their own of course, and then not to be held accountable for it as Eurostat does not count sovereign guarantees or contingent liabilities of the nations in Europe. The ECB is owned by all of the governments in Europe of course, but tell no one; no one at all.
“Mere flimflam stories and nothing but shams and lies.”
                                                                 -Miguel Cervantes
To make matters worse they government of Spain is now directing the Spanish banks to raise an additional $65 billion in 2012 which is going to come from where I wonder. Perhaps the Spanish Inquisition Fund for the Unemployed. The unemployment numbers for Spain are now the highest in Europe for both the general population and those under 35 which now stands at almost one-half of the country’s younger people. I fear that Prime Minister Rajoy’s eminence may be of short duration.
“Spain does not need a financial bailout at this moment."
              -Spanish Economy Minister Luis de Guindos, April 10, 2012
Wait just a moment; the next one will arrive!


Inconsistencies in Spain's Budget Suggest Deficit will be 7% not 5.3%; Andalucia Regional Government Will Not Agree to Deficit Targets; Only 26% Trust Prime Minister to Overcome Crisis

Courtesy of Google translate, please consider The inconsistencies of the State Budget for 2012
Much is written these days about the budget submitted by the Government for 2012, which proposes that the deficit be lowered to 5.3% of GDP. In this article we focus not on a comprehensive analysis of these items but in both revenue and expenditure forecasts which seem less realistic.

The first of these items is to transfer the SPEE (State Employment Service, former INEM). The government budgeted a reduction of 15.6% (2,464,000), arguing that many are unemployed benefits are ending. Since the Government is assuming that unemployment will increase this year over 600,000 people, there is no reason for us to see a turnaround, quite the contrary. In view of the numbers a reasonable assumption would be a 10% increase in unemployment benefits starting in 2012. This means a delay of nearly 4,500 million from the budget, ie 0.4% of GDP.

A second item of expenditure in which there are serious inconsistencies is Social Security. In the Budget is expected to increase costs (which are mainly pensions) of 0.9%. This assumption might have been possible if the pension had not been updated with the CPI, but in current circumstances is totally unworkable. In fact, the costs to February are up 3.7%. This would lead to a lag in the game cost about 3,300 million.

Noninterest income on Social Security, the Budget provided for 119.884 million euros. However, revenues in 2011 were 118.436 million, down 0.5% compared to 2010. This projected increase is totally impossible with the dynamics of job destruction to which we have referred. Since July we have seen that affiliations have fallen to an average of 50,000 per month (corrected for seasonality), which would lead to a decrease of 3.6% at the end of the year, unless economic recovery unlikely. As wage increases are below 2% on average, this would be a scenario of falling revenues or more than 1%, which is, a lag of about 2,600 million between government forecasts and estimates more reasonable.


On the revenue side, there are likewise transcendental inconsistencies in almost every game. Starting with the income tax, the government plans to enter under this heading 73.106 million compared to 69.803 million actually collected in 2011 (+4.7%). However, in the first two months of the year for income tax revenues fell by 2.8%.

In February, with the rise of income tax already in place, revenue rose only 1%. With the increase in unemployment that is occurring is expected that this increase of 1% will decline as the months pass and the collection ends, in a reasonable way, more in line with 2011.

Regarding indirect taxes, the picture is similar. The Government anticipates a reduction in revenue of 3%, but in the first two months of actual observed reduction is 8.4% (5.7% in February). In view of the data that come out of consumption and investment is likely that total revenue in 2012 falls into the environment seen in the month of February or possibly slightly less. This will yield a lag of about 1,500 to 2,000 million in revenue, that is, another 0.2% of GDP.

Add It Up

Adding all detected mismatches (focusing only on large items), 5.3% deficit forecast by the government would really be 7%. And even supposing that regional governments and municipalities comply scrupulously with the objectives of spending, which bodes extremely difficult, so the end result of the exercise would be even worse than the above 7%.
Regional Governments in Spotlight

I have been saying for what seems like forever that Spain would not makes its budget. It won't, and we have a starting point for how bad it might get.

Note that text above on regional governments.

My friend Bran who lives in Spain writes ...
Hello Mish

Andalucia is the only autonomous region (another abstained) not to agree to a 1.5% deficit this year. Andalucia criticizes government attempts to undermine its 2011 deficit figure, and argues that according to law the limits of ratio for state debt are 20% central , 75% regional , 5% private state partnership.

They also argue that the central government has not paid several billion due to them, and that it is unfair that the state deficit is to be 5.3% , and yet regions are to only be allowed 1.5% deficit. Andalucia being 'not PP' is taking its own stance hence.

No Trust in Prime Minister Mariano RajoyThat comment about Andalucia being 'not PP' refers to the "People's Party" led by Prime Minister Mariano Rajoy.

Speaking of which (and also via Google translate) Only 26% of voters trust Rajoy of the PP to overcome the crisis
The Prime Minister is seeing increasing pessimism among voters who supported him in November 2011. The CIS barometer of March concluded that only 26.7% of PP voters trust the new government to improve the scenario in the country.

The CIS survey also reveals that 35.7% of voters who supported Mariano Rajoy considers that the uncertainty will remain constant in Spain and 27% think worse.

These data reveal a growing tendency to pessimism by the voters themselves the Popular Party, and a bump in the strategy Rajoy, who from the campaign appealed to the confidence to regenerate the Spanish economy.

Growing pessimism in the first quarter

Increasing trend since January, when this same barometer revealed that 35% of PP voters believed that the government would achieve better Rajoy scenario in the country, representing a decrease of 10 points on the confidence generated in the last three months.
Pessimism is even higher among Socialist voters, UI and UPyD. In total, 37% opted for the situation worse, and 36% believe that there will be major changes.
Spain is already in an economic depression and the situation will become much worse.


Spain’s efforts to calm investors with an additional 10 billion euros ($13 billion) of budget cuts in education and health failed to stem concerns the nation may be the fourth euro member to need a bailout.
The yield on Spain’s 10-year benchmark bond surged almost 20 basis points to 5.94 percent today as Economy Minister Luis de Guindos declined to rule out a rescue for Spain and Bank of Spain Governor Miguel Angel Fernandez Ordonez said the nation’s lenders may need additional capital if the economy weakens more than expected.
Mariano Rajoy, Spain's prime minister. Photographer: Jock Fistick/Bloomberg
April 10 (Bloomberg) -- John Wraith, a fixed-income strategist at Bank of America Merrill Lynch, discusses the outlook for Spanish bond yields as Prime Minister Mariano Rajoy stepped up efforts to reassure investors he can bring the country's deficit under control. Wraith, speaking with Owen Thomas and David Tweed on Bloomberg Television's "Countdown," also discusses his strategy for Treasuries. (Source: Bloomberg)
April 9 (Bloomberg) -- Charles Dallara, managing director of the Institute of International Finance, talks about European leaders' response to the region's debt crisis and the potential impact of the crisis on the economy and banking industry. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
April 10 (Bloomberg) -- Bloomberg's Sara Eisen reports that the yield on Spain’s 10-year benchmark bond surged almost 20 basis points to 5.94 percent today as Economy Minister Luis de Guindos declined to rule out a rescue for Spain and Bank of Spain Governor Miguel Angel Fernandez Ordonez said the nation’s lenders may need additional capital if the economy weakens more than expected. She speaks on Bloomberg Television's "Inside Track." (Source: Bloomberg)
Prime Minister Mariano Rajoy yesterday unexpectedly announced the 10 billion-euro package, less than two weeks after unveiling the most austere budget in more than three decades. Rajoy is targeting basic public services for the first time since his election in December in a bid to convince investors he can bring order to the nation’s finances.
“There are growing fears that the Spanish economy is caught in a pernicious circle,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e- mailed response to questions. “The weakness of government finances, the fragility of banks and worries about the scale of the recession all feed on each other.”

Yields Jump

Spain’s 10-year borrowing costs have jumped more than one percentage point since March 2, when Rajoy announced that Spain will miss its 2012 budget-deficit goal approved by the European Union. Spain overshot last year’s target and the nation is battling its second recession since 2009.

Euro-region finance ministers on March 12 settled on a shortfall goal of 5.3 percent of gross domestic product for Spain in 2012, leaving it unchanged at 3 percent for 2013.
Rajoy will spell out his planned reforms at a meeting of People’s Party parliamentary deputies tomorrow, an official in the government’s communications department, who asked not to be named in line with its policy, said in a phone interview yesterday. Health and education, the areas Rajoy said he would cut, are run by regional administrations, and the premier will meet today with Esperanza Aguirre, head of the Madridregion.
The government forecasts Spanish public debt will surge to a record 79.8 percent of GDP this year even as it seeks to cut the budget deficit by 3.2 percentage points of GDP in one year.

‘Ambitious’ Reforms

The country is working on “ambitious” health reforms and has to put regional finances “in order,” Budget Minister Cristobal Montoro said in an interview on RNE radio today. He also said that increasing the value-added tax would be a “deep error” that would extend the recession and hurt consumption.
Spain doesn’t plan to seek aid for its banks from European rescue funds as European Central Bank lending has provided them with a “very considerable liquidity cushion,” Montoro said.
The ECB has lent banks in the euro region more than 1 trillion euros for three years since December, propping up demand for sovereign bonds. The ECB should be more aggressive by buying more public and private debt, Alfredo Saenz, chief executive officer of Banco Santander SA, said in Madrid today, calling for “stronger European quantitative easing.”

Charles Dallara, head of the Institute of International Finance, who negotiated a Greek debt swap on behalf of private bondholders, said Europe is focusing too much on austerity, threatening its economic recovery.

Reassuring Investors

With the threat looming of a resurgence of the region’s sovereign debt crisis, Dallara called on European officials to enhance their crisis-fighting tools. This is “essential for reassuring markets that the euro area has the resources and commitment to assist member countries facing contagion risks and difficulties in accessing capital markets,” he wrote in a letter prepared for next week’s meetings of the International Monetary Fund and of the World Bank.
“As a result of Spain’s challenges, sentiment towards its sovereign bonds is now the bellwether for Europe’s debt crisis,” Mansoor Mohi-uddin, chief currency strategist at UBS AG (UBSN), wrote in an e-mailed note on April 7. “If investor appetite wanes, then currency markets will start to price in either ECB rate cuts to help restore sentiment, or Madrid requires external assistance from its European Union partners.”

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