Spain’s economy is in tatters
I have been amassing a lot of Spanish-language links in the past two weeks or so. And with the news that unemployment has finally climbed to a record above 6 million, I think now is the time to post them. Again, in the wake of the Reinhart-Rogoff controversy, there is certainly going to be a push forward toward stimulus. And Spain is going to be a leading player here. The problem for Spain is that the country is beset by deflationary forces from all sides – local government fiscal problems, banking sector recapitalization, deflating mortgage market, record unemployment.
And yet, the euro acts as a huge impediment to a more expansionary fiscal path. The Spanish have gone through one crisis already and were forced to go cap in hand to the Troika as a result. There is no political appetite for a repeat. So, the Spanish are going to have content themselves with dabbling around the edges with pro-employment policies. And the EC is going to continue to insist that pro-growth equals labour market reform.
That’s not going to be enough. The Spanish want stimulus. This is what the Spanish want and they have been pleading with Merkel for months now. Rajoy’s entreaties have fallen on deaf ears. My overall sense is that Germany’s hiding behind the Troika is a mistake. Merkel is reported to have told the Cypriot president during the depths of that crisis that she would not negotiate with him as the Troika made the decisions. But we all know this is ridiculous. Germany is the leading voice behind Troika decisions and Merkel’s hiding behind them is going to lead to Germany’s loss of power. We saw this when Mario Draghi took the helm of the ECB. Now the Germans are no longer leading ECB policy. With countries like Spain in the midst of Depression, and France and the Netherlands now also over the 3% deficit hurdle, it is only a matter of time before the Troika turns against the Germans. The Spanish will gain allies.
In fact, the IMF and the EC head Barroso have already broken ranks. Where I think this is going then is that pro-growth policies will now move away from just ‘structural reform’ to actual stimulus. The EU leaders’ letter in the New York Times hints at this. The EIB is going to be the vehicle here. However, with the OMT program in the background, that also provides the ECB with an opportunity to prop up sovereign bonds if and when sovereigns apply. I have said that I expect Spain or Ireland to be first into the OMT. Right now, however, the sovereign bond market is going from strength to strength. I don’t think this lull will last. Eventually, the ECB will be forced to act. And in fact, now is the perfect time for Spain to go OMT. After all, with bond prices low, they qualify. Having the ECB as a formal backup will then make stealth monetary stimulus possible. But I wonder if Rajoy understands this. Likely he will wait until crisis hits.
So, the song remains the same: austerity to prevent defaults, leavened by bailout loans and guarantees. With the lull in the sovereign bond market it would seem this can go on indefinitely. But social cohesion is fraying. Spain is front and center in this. But, just as I predicted three years ago, Spain’s debt woes and German intransigence lead to double dip. And this is exactly where Europe is – with growth in the core starting to fade as well. Slowly, European stimulus is increasing in response. But it won’t be enough. Eventually, crisis will return to Europe.
Read these articles. They are a devastating testament to how destructive the economic policy path has been to the Spanish economy. It is only a matter of time before we get open revolt.
BBC News – EU austerity: No quick fix for Spain
“”There is no future in Spain,’ says Lorenzo Barba.
“Three generations are being destroyed – mine, my parents’ generation because they are supporting us. And the worst part is what will happen to my son.”
And herein lies the Spanish nightmare. For the country to see unemployment decline, it needs growth of more than 2%. No one is predicting that at the moment.
So as Daniel Fernandez Kranz, from the IE business school, points out, it is likely that unemployment will continue rising for three or four more years. That will test the resilience of Spanish democracy.”
Pain in Spain drives South Americans back home – Telegraph
“Earlier this week, data released by Spain’s National Statistics Institute (NSI) showed that the number of Spanish residents fell by 206,000 to 47.1m – a figure entirely accounted for, the NSI says, by the fall in the number of registered foreign residents. The population of native Spaniards grew last year by 10,000 – a smaller increase than in recent years – only minimally offsetting a fall of 216,000 in the number of registered foreigners.
The majority of those leaving were from Colombia, Ecuador or Bolivia – leading to the first drop in population in modern Spanish history.”
Francia supera su récord histórico de parados, establecido en 1997 | Economía | EL PAÍS
Even France has record unemployment now. The rate is 10.6% and that puts the level at the highest, breaking the record established in 1997. I see France as a key ally with Spain in changing Troika economic policy away from the Germans. When the Dutch get onboard, policy wlll be altered permanently.
The great Spanish nation can end its crucifixion at will by leaving EMU – Telegraph Blogs
“The mind goes numb. Spanish unemployment jumped by yet another 237,000 people in the first quarter to 6.2 million, or 27.2pc.
This is equivalent to roughly 8.3 million in Britain, or 39 million in the United States. The country is losing 3,581 jobs a day. There are 1.9m households where no member of the family has a job.
As you can see from this graphic, the rate has reached 36.8pc in Andalusia, Spain’s most populous region.”
Rehn reclama al Gobierno medidas “amplias y concretas” para este viernes | Economía | EL PAÍS
Olli Rehn and the EC want “wide-ranging and concrete” structural reform plans from the Spanish tomorrow. Will they get it though? And if they don’t what will happen?
Spain: Stuck on the sidelines – FT.com
“The people left behind are coalescing into the hard core of a new Spanish underclass that will become more difficult to dissolve with every month that passes. Some 640,000 jobless Spaniards below 30 are – despite their age – already classified as long-term unemployed. Economists warn that the rapidly swelling ranks of young, low-skilled unemployed pose a challenge to the country that is likely to outlive the crisis by many years. What is at stake is not just Spain’s long-term economic prospects but also the social and political fabric of a society that has faced the downturn – at least until now – with remarkable equanimity and solidarity.”
Más de seis millones de parados | Economía | EL PAÍS
Must see graph of the Spanish employment situation. It is mind-boggling stuff. We are talking about a Great Depression for Spain here. Unbelievable
BBC News – Spain’s Bankia returns to profit
“The bank said it made 74m euros (£63m) in the first three months of this year, after a bailout last year helped it get rid of bad property loans.
Bankia became one of the biggest casualties of Spain’s financial crisis, losing 19.2bn euros in 2012.
But the bank warned the Spanish economy was still a cause for concern.
“This year, 2013, will mark the return to normality, in an environment that is still not normal,” Bankia’s director general Jose Sevilla told reporters.
“[It] is a very demanding environment.”
Its losses last year were the largest in Spanish corporate history, and it remains majority-owned by the government after receiving about 18bn euros of aid, funded by the European Union.”
Spanish unemployment tops 6 million | Reuters
“Unemployment – 6.2 million in the first quarter – has been rising for seven quarters and the latest numbers will fuel a growing debate on whether to ease off on the budget austerity which has dominated Europe’s response to the debt crisis.
“These figures are worse than expected and highlight the serious situation of the Spanish economy as well as the shocking decoupling between the real and the financial economy,” strategist at Citi in Madrid Jose Luis Martinez said.”
La crisis se ceba ahora con el empleo público y lleva el paro a 6,2 millones | Economía | Cinco Días
More on the jobs number in Spain here. The number of jobs destroyed was 4.5% of employed on an annualized basis. In Q1, 237,400 more people were unemployed, putting the total at 6,202,700, the highest ever.
If you read Spanish r can translate this, it is a pretty comprehensive review.
Crisis económica: El paro juvenil escala al 57,2% | elmundo.es
Youth unemployment in Spain reached 57.22% in the first quarter of 2013. It really is amazing that the economic path remains the same.
“El mundo debe aprender a vivir con un crecimiento bajo en los países ricos” | Economía | EL PAÍS
Jim O’Neill’s successor at Goldman Sachs Katie Koch has a good interview on emerging markets with El Pais here. In it she says that investors need to learn to live with lower growth in the largest developed economies.
Andalucía es la comunidad con los Ayuntamientos más endeudados | Economía | EL PAÍS
Andalusia is the Spanish state where the government is most indebted. The government’s debt is the equivalent of 8520 euros per inhabitant. Andalusia is also, not by coincidence, an area where unemployment is particularly acute. The problem in Andalusia highlights how state fiscal finances will weigh on the sovereign’s fiscal profile. Eventually this problem will come to a head with either increasingly intractable ability to lower unemployment or via a sovereign bailout of the state or via a state debt default.
This article is also good in that it has a ranking of municipalities with the best and worst debt profiles per inhabitant.
La crisis ataca al corazón de la eurozona | Economía | EL PAÍS
Article on how the euro crisis has moved to the core. It shows some good graphics comparing global growth with the growth rates across various countries and the EU. The chart is great because it makes clear how much of a laggard Europe is.
España paga por sus letras intereses de antes del rescate de Grecia | Economía | EL PAÍS
The Spanish see huge interest in their sovereign debt now. Is this the result of the lack of safe assets? I don’t know. But it is striking given the yields on periphery debt started falling right after the Cyprus bailout finished. This article points how much debt Spain has been able to sell at low yields.
At the time the article went to press, Spain had secured almost 40% of its needed funding for the entire year. I believe that mark is now 44%. Expect to see a lot of Spanish issuance in coming months to take advantage of the favourable rates.
“El euro va a sobrevivir a costa de los países de la periferia” | Economía | EL PAÍS
Interview with James Galbraith who tells us that the euro will only survive on the backs of the periphery countries.
The structural reforms that Olli Rehn and the EC are expecting to see in Spain really are not happening. This El Pai article says that Luis de Guindos is only making labour market reforms that are ‘cosmetic’ in nature.
España eleva sus quejas sobre el BCE | Economía | EL PAÍS
In this post from two weeks ago, El Pais says that Madrid is actively pushing within the Eurogroup for the ECB to take a more aggressive role in dealing with European economic problems. This is counter to the ECB’s mandate, which is only geared to inflation. I don’t see this happening except via the OMT’s activation. For me, this is where Spain is headed. With yields very low, now would actually be the time to trigger OMT if Rajoy really wants stimulus.
Novagalicia convirtió en preferentes el depósito de una cartilla infantil | Galicia | EL PAÍS
A Spanish court has forced Novagalicia Banco, a Spanish bank, to return a depositor’s money that she had invested in preferreds thinking she was investing her young daughter’s savings in deposits. This whole shameful period of Spanish banks fleecing their depositors by getting them to voluntarily convert deposits into preferreds is going to be a big political problem when more Spanish bank problems crop up down the line.
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