Kamis, 12 April 2012

While claiming a bailout is not being discussed , note that the EU has now made two mission to Spain in less than a month to get their arms around the economic imbalances in Spain ( high unemployment , problematic budget deficit target , austerity goals and whether the Rajoy government will go through with the measures in light of growing public discontent with same ) . Note targets for this visit include the Ministry of Economy and also possibly the Bank of Spain and the National Institute of Statistics. And no , this isn't as routine as being advertised by Spain or the EU Commission !


Spain's economy minister and European Union officials denied yesterday (10 April) that the country needed an international bailout, following Greece, Ireland and Portugal.
Economy Minister Luis de Guindos told journalists that Spain “does not need a rescue at this time,” as the liquidity provided by the European Central Bank was enough to shelter the country’s ailing banking sector.
Spain’s budget deficit and growing debt has worried investors, but senior EU officials said Brussels was pushing the Spanish government to implement tough reforms and announced and that there were no bailout talks, despite a sharp sell-off in Spanish bonds.
Prime Minister Mariano Rajoy announced new spending cuts on Monday in a bid to meet a stringent EU deficit limit. The EU welcomed the savings but many analysts fear they will lead to a deeper recession, a scenario that Spain’s Central Bank Governor Miguel Ángel Fernández Ordóñez said could mean banks will need more capital.
"If the Spanish economy finally recovers, what has been done will be enough, but if the economy worsens more than expected, it will be necessary to continue increasing and improving capital as necessary in order to have solid entities," he said at a conference in Madrid.
The economy is forecast to contract by 1.7% this year but is likely to deteriorate further as the government slashes €27 billion from the central budget, and billions more from spending in the country's 17 autonomous regions.
Ordóñez said it was unlikely the country would experience a strong recovery in the short-term.
"The solutions to the crisis, which came from excessive debt or loss of competitiveness, are very slow within a monetary union and that is why we can't afford to become complacent," he said.
The latest banking reform, introduced two months ago, urged banks to put aside around €50 billion of provisions to mop up real estate losses and encouraged mergers and costs savings without dipping into state funds.
The government says it will not need to inject more state aid into its banks, but many analysts are sceptical that simply forcing weaker rivals into the arms of more solvent players will be enough to fill funding gaps.
A weak auction of Spanish bonds last week underscored investor concern over the economy.
Spanish 10-year yields were 17 basis points higher at 5.95% after rising around 25 basis points last week. The spread over German Bunds is at its highest since early December, before the European Central Bank flooded banks with cheap three-year liquidity.
Italian bonds are also under pressure because analysts see it as vulnerable to Spanish problems.



Madrid received on Thursday a European mission to oversee the measures being implemented by the Spanish government to correct economic imbalances . Battered by harassment of markets and for unpopular decisions being taken to balance the books, the Spanish government welcomes this mission, which will conclude its work by Friday, according to confirmed sources of the European Commission and the central government.
The Ministry of Economy will be the main target of this group of experts, which in addition to the European Commission technical involving other Eurostat, the EU statistics office, at a time when the Spanish public accounts deserve international attention . Secretary of State for Economy, Fernando Jimenez, will be responsible for receiving them.Technicians may also visit institutions like the Bank of Spain or the National Institute of Statistics.

The European Commission insists that it is a routine mission to visit the 12 EU countries in Brussels identified that excessive imbalances (unemployment, public deficit, external balance ...).However, it is the second time in less than a month that a mission would visit Spain. In the above, EU sources acknowledged that these contacts were not as routine as the official information sought to highlight.
Parallel to the analysis of macroeconomic imbalances, the panel will monitor how progress measures to alleviate the excessive deficit recorded Spain (8.5% of GDP last year, compared with 6% predicted).
So far Brussels has been very warm with the latest-and strong-measures announced by the Government, despite the positive effect of such a message might have caused to the siege of markets. After submitting to the Commission the State Budget more restrictive of democracy, its spokesmen have said only that they lack the data of the regions and give the Executive until the end of the month to provide them. On the announcement of a cut of 10,000 million euros in health and education, Brussels appreciates the "significant efforts", but clearly Executive clothing Mariano Rajoy.



How Much LTRO Dry Powder Is There, And Why Spain Is Again The Wildcard

Tyler Durden's picture

Now that every morning the US market is once again in full on European debt issuance stress mode, it makes sense to see just when the real stress will hit the tape, or in other words, how long until the LTRO money fully runs out. Remember that the latest contraption in the European ponzi, the LTRO, took worthless collateral from European banks, and flooded them with fresh money good cash so they could use this cash to buy their own sovereign debt, and specifically to prefund the hundreds of billions in 2012 issuance net of debt maturities. So how does the math work out? Deutsche Bank summarizes the unpleasant picture.
Although exact figures are not yet available, we are able to deduce that from the two 3yr LTRO’s combined,Italian and Spanish banks would have had about €104bn and €54bn to utilise in carry trades (net of re-financing). Between Dec 2011 and Feb 2012, Italian banks purchased €43bn of domestic bonds and Spanish banks €61bn. We can see here that Italy still has €61bn of LTRO headroom left while Spain has already surpassed their allotment by about €7bn.

If we take these figures and compare them to the expected sovereign issuance over the rest of 2012, we start to gain a clear picture of potential pressures during the year. Spain has completed €40.5bn out of the estimated €86bn in issuances so far with €45bn expected in redemptions, leaving them essentially flat for the year. Italy on the other hand has completed €74bn out of the estimated €232bn in issuances so far with €128bn in expected redemptions, leaving a net issuance headroom of €30bn. Our rates guys therefore conclude, that in general, Italian banks are better situated to support their domestic bond market this year than the Spanish banks are.
So while both Spain and Italy are likely literally on the edge when it comes to net issuance and demand dry powder, there is one very big risk:
Clearly one risk is that non-domestic bank holdings decline further
offsetting any domestic bank buying. Interestingly the external holding
of government debt in Spain and Italy has declined to 30% and 37%
respectively. For both countries this was at 45% level in 2010.
Translated: selling. Indeed, if despite everything Europe has done, plain old vanilla selling resumes, the LTRO cash will go poof. Which brings us full circle: has the market regained faith and trust in the CDS market after ISDA's trickery in 2011? If the answer is yes, bond vigilantes may just buy CDS instead of selling bonds. If the answer is not, Europe's period of recovery is now effectively over, as any incremental selling will result in a vicious cycle whereby the full benefit of the LTRO will have been not only exhausted, but more LTRO will be demanded just to keep up with net issuance! And that assumes not additional selling as a result of that.
Sadly, ponzi schemes always end up being all too transparent, and never end well. This one will be no exception to the rule.

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