Potential foreign buyers of Spain's sovereign debt are likely to wait on the
sidelines, however, until the efforts to clean up the financial sector start to
show that banks are beginning to lend again to the euro zone's fourth-largest
economy, said Jordi Fabregat, a finance professor at Esade Business School in
Barcelona. Additional clarity about European Union countries' willingness to help weaker
brethren could also draw investors. Those outcomes could take months or
years.
The latest measures show "Spain's determination to comply fully with the
requirements" to get financial support from the EU, said European Monetary
Affairs Commissioner Olli Rehn.
The government hopes to limit its ownership in the bad bank to 50%, with
private investors taking the rest. Finance Ministry officials indicated on
Friday that they hoped to take a page from the Irish model for cleaning up the
banking sector while avoiding its pitfalls. Many analysts say the Irish
government paid too much for the banks' bad assets.
Spain wants to focus on the transfer of land and unfinished buildings that
account for half of the €180 billion in problematic property assets held by
banks. The government still has to specify potential purchase prices. Bankia, the ailing lender that is a focal point of Spain's banking crisis,
stands to shed a significant amount of toxic property. Spain's fourth-largest
bank by assets, Bankia on Friday posted one of the largest losses on record for
Spain's financial sector. It posted a loss of €4.45 billion after booking loan
losses of about €6.57 billion. The bank said an extensive cleanup of its balance
sheet conducted since the government took it over in May spawned total charges
of about €7.5 billion. The losses were in line with projections disclosed by the
company's management after the government's takeover, Bankia Chairman José
Ignacio Goirigolzarri said. Spain's bank bailout fund plans to inject capital immediately into Bankia
before the first tranche of EU aid to the Spanish financial sector is made
available, which likely will arrive by November. The bridge funding could be
between €4 billion and €5 billion.
8 comments:
We spent 2011 dodging and delaying what appeared to imminent defaults in Europe. Rather than follow the legitimate approach of recognising government insolvencies and the unsustainability of the Euro, European leaders continued to pursue what they perceived as the more morally praise worthly approach of continued bailouts and the potential for greater European fiscal union. This writer however believes, and has always argued that the national solvency issues should be recognised, accepted, and resolved in order to move forward. The "Club Med" nations of the Euro that are hopelessly insolvent should be cut lose fo the Euro and allowed to reorganise their debts and currencies on their own account.
The massive writedowns that need to occur in European banks should be allowed to proceed and if some disappear all the better. Those who have pursued prudent risk and lending policies (if any) will be rewarded; the only proviso I have is that depositors should be guaranteed by the State.
Pressure on government bond pricing has been significant over 2011. Perhaps 2012 is the year when interest rates across the developed finally start to realistically factor in the significant price of sovereign risk.
Whatever happens in Europe will seem like sideshow compared to the economic consequences of the Chinese economy finally discovering the theory of gravity. That remains a dice roll......
Unfortunately, as this blog has long maintained, this disaster started in the 1990's just as the previous one started in the 1920's. The irresponsible expansion of money supply led to this situation. This increase in money supply led to an expansion in credit. The expansion in credit led to inflation, not in CPI's (largely) but in asset prices, like Spanish real estate or US shares. As the asset values increased so did the apparent collateral to support the underlying debt. In many cases this increase in asset values was realised as income and cashflow funded by the debt that was borrowed against the asset value. This occured at many levels. Individuals borrowing against their houses and spending the surplus from thier refinanced mortgages, and investment banks refinancing infrastructure and property and distributing the refinancing gain to equity investors.
Now the magic roundabout has stopped. Now we all get off and now we begin to understand where we are:
•Unemployement in the teens and twenties.
•Wholesale collapse in asset values.
•Both governments and systems of government collapse.
•The rise of totalitarian states to replace weak democracies as people seek to blame anyone but themselves. Greece may be the first.
The cycle is repeating itself. Welcome to 1934.
And as the EU officials debate what to do, the protests against austerity continue. In Greece judges, public prosecutors and court workers are demonstrating at Greece's Supreme Court to protest expected pay cuts, says AP:
Organizers of Wednesday's protest threatened to cut operating hours at the country's backlogged courts if their salaries are slashed as part of the €11.5bn austerity measures through 2014.
Police, Fire Service and Coast Guard associations are planning a protest in central Athens with officers in uniform on Thursday.
The eurocrisis is dominating the Dutch election, where incumbent prime minister Mark Rutte last night ruled out providing a third aid package for Greece.
Rutte told a televised leaders' debate last night that Greece must make economic reforms and hit the targets laid out by the Troika. As he put it:
A deal is a deal...
We already agreed two packages and I believe that's it. If you promise a third package, you take away all the pressure and you say to Greece: Do not reform.
More details here
The Dutch head to the polls on 12 September. After a strong start, the anti-austerity Socialist party appears to be losing support, leaving Rutte's party on track to win the most seats. That suggests the Liberals (who are fiscally conservative) could form a coalition with the Labour party.
Germany fails to sell full €5bn of bonds
Bond Auction News. A sale of German debt has gone "uncovered", while Britain managed to borrow for three decades for at an interest rate below 3%.
Gemany only sold €3.6bn of 10-year bonds, out of a total of €5bn. The average yield was unchanged from the last auction of this type (which was also uncovered), at 1.42%.
The UK debt management office, though, shifted all £1.75bn of 30-year bonds at average interest rate of 2.951%. Buyers can't be expecting raging inflation in Britain anytime soon.
Don't fret for Germany, though -- the Bundesbank will now quietly sell the remaining debt in the markets (as it always does on these occasions), and City experts are taking the uncovered auction in their stride:
Wolfgang Schäuble, Germany's finance minister, has given a cautiously optimistic prediction this morning, that the eurozone will be a slightly calmer place in 2013.
Speaking to German ratio station Inforadio, Schäuble said:
Next year the euro will be a bit more stable and will cause fewer jitters on the financial markets but it still won't be in completely calm waters.
Schäuble also predicted that the euro zone will still exist in the same form in a year's time (Reuters reports), which defies predictions that Greece could be bundled out once the US elections are over.
The troika (the European commission, European Central Bank, and International Monetary Fund) demands (leaked email) increased hours of work for Greece) six day week etc, yet Greeks already work the most hours in Europe on average (OECD figures), the problem instead is productivity. Increasing work hours will not change this. It may even make the disparity worse. So why make such demands? It is like an abusive parent who has lost the plot and can only think of crude reward and punishment as methods of childcare. Are there real gains to be made from such an approach? If, across Europe, workers entitlements were removed, as is being proposed (the troika apparently wants to dismantle the labor inspectorate in Greece too) the general idea is that this will boost 'profitability'. If, however, the most profitable labor is not in the nation with the longest hours worked, this still makes no sense. Skilled, and so more expensive, labor is cheaper in relation to productivity (as Marx notes). The problem, then, is that investment into productive activity is not happening by those who have the wealth. The expansion of capital has stalled, or at least fallen below the level necessary to service debts, and the blame is falling on the real wealth creators, the working class, and not the pseudo wealth creators, the investors (the bourgeoisie). The pseudo wealth creators (e.g. dealers in fictitious capital) have looked around at who to blame for the crisis, and can only conclude that it is either themselves, for not investing wisely or at all in production, or those who they exploit, and they come, naturally, to the latter conclusion.
The falling rate of profit cannot be stopped by cutting workers benefits and rights, it may make a small difference one way or the other, but this is not the source of the global problem; however, treating it as the source of the problem produces a political effect (more than an economic one), it becomes the increasing authoritarian way the economic measures (the 'punishments') are imposed. And Greece is the ideal place where the 'logic' can play out due to its specific conditions: the corruption of the state apparatus which makes it something like the corrupted state of the final years of the Soviet Union; socialism can be blamed here, which is politically useful to the ruling class in a situation where socialism may be increasingly proposed as the genuine answer.
This stupidity has to be fought or we are going to slowly slide, by default, to a destination that nobody sensible wants. - Or, is it that the adherents to troikan austerity have already made this calculation and are merely acting protectionist in fear of the same logic being imposed on them, on the northern economies? If so, such an attitude will not prevent it. I can only conclude from this that the motor of the politics of the crisis is the fear and protectionism of the wealthy, translated and disguised in troikan politics as the programs of cuts. The cuts are not rational, they are emotional and political, and they divert attention from the real problems, they are a manifestation of class hatred, of the battle between classes, and the effort of bourgeois democracy to keep this struggle hidden under the rhetoric of the very universality (democratic capitalism means rights and freedoms) that its measures are undermining, - so contradiction, and the result of this contradiction will be strife, conflict.
All that seems to be happening in Greece, are cuts to the peoples wages & pensions. What needs to happen in Greece, is for the EU, to force the Greek government to restructure the whole bloated system of bureaucracy. They also need to be forced to privatise publicly owned entities. This is where the real savings are to be made. Greece is making the average citizens life a misery & saying they cannot cut any more. This is a dammed lie.
And the above is a damned myth.
The spending of the Greek state as percentage of GDP is the average European. This is a well establissed fact.source: americanprogress.org
Here is another source:opinion.publicfinance.co.uk
"Before the international crisis in 2008 Greek government was not that big, comparatively and relatively. Public spending in 2007 was about 43% of GDP, or about three percentage points higher than the OECD average. Greece ranked about 9th, about the same level as the UK.
Public service employment was about 8% of the labour force (2008), compared to the OECD average of 15%. Employment in state-owned enterprises was however much larger, at about 13% the biggest of OECD countries. The combined 21% was still however only about the OECD average (and again, more or less the same as the UK).
Greek spending on public sector wages was 11.2% of GDP, compared to an EU average of 10.4%."
Spending of public sector can be of course reduced by cutting the exorbitant military spending currently 6% of GDP. And by reducing the waste that is caused by corruption in Greek public life between politicians and business. Cutting low salaries by 50% and sacking workers is wrong. It has killed the economy and destroys society.
But the key problem in Greece is not the spending which is average but tax collection which lags the European average per capita GDP.
Greece needs a new left wing government with commitment to do the right cuts and improve tax collection.
To achieve the above, Syriza plans to confiscate property from those who fail to pay taxes; sign a bilateral agreement with Switzerland on the taxation of savings of Greek citizens there (this is going on anyway now); a radical reform of the tax system to redistribute wealth; and the introduction of a National Agreement to raise taxes from ship owners and the maritime industry, currently operating at 0%!
Syriza also announced the removal of parliamentary immunity across the board with immediate effect, and a bilateral agreement with Turkey to stop the process of armaments which consumes 6% of Greek GDP in military and replace it with a program of economic cooperation and education. He also announced an immediate resolution to the "problem" of FYROM .Before the election, Tsipras has been in Switzerland to negotiate the tax deal, he has also been to Turkey and Skopje to discuss change in policy there.
*This* is the type of change Greek needs, not the hideously ill-informed, wrong, economy destroying, anti-labour Troika policies.
Post a Comment