Spanish bank to seek 19 billion U.S. rescue loan

Bankia SA, Spain's fourth largest bank, saw its share trading suspended on Friday (May 25th). The bank is expected to request more than 19 billion U.S. from the government.

Bankia is faced with many bad real estate debts but it also holds 10 per cent of Spain's bank deposits. The bank was unable to raise enough capital to deal with its burgeoning losses from bad real estate debt. A real estate boom in Spain crashed in 2007 and 2008 and banks are still suffering from the bad loans made at the time.

The government has already spent 4.5 billion euros to keep the bank afloat and partially nationalized it. The entire rescue package may cost 20 billion euros. This will force Spain to go to the markets when borrowing costs are already high.

The expenditure of money to rescue banks is causing some anger among the populace when Spain is being forced to cut spending on hospitals and education to meet EU austerity demands. Many think that the plan by the Conservative government of Mariano Rajoy to try to bring the deficit down to 5.3 per cent of GDP is doomed to failure. Shares in Bankia have fallen 34 per cent on the Madrid stock market since May 7. Perhaps Spain will see more withdrawals of funds from its banks. For much more see this BNN article.

Spain: Millions protest education cuts

Most schools and universities are closed today. Both teachers and students are in the streets protesting cuts to educational funding as part of the countries' austerity measures. The government has slashed billions of Euros from the education budget.

The strike spans the whole system from elementary schools to universities. Both teachers and students are taking part in demonstrations today May 22.

­ The austerity measures if passed will reduced government funding to schools by more than 20 per cent. Unions say this will result in poorer educational conditions, mass teacher layoffs, and also higher tuition costs. The Spanish government is adding more austerity measures in addition to the 30 billion Euros in cuts already planned for this year. Overall unemployment is running at 25 per cent already and 50 per cent among young people. There have been numerous mass protests already in 2012 most not much covered by the media. I include a video of the celebration of the 15M or indignados movement. For more including video and photos see this site.

Spain falls back in recession

Official statistics show that the Spanish economy shrank by .3 per cent during the first quarter of 2012. While this is not a large decline it is enough for Spain to be technically in a recession after two consecutive quarters in decline.

The new figures confirm the precarious state of the Spanish economy. Spain has a record 24.4 per cent unemployment rate the highest in the Euro zone. The contraction was caused by weaker demand with lower public and household spending as austerity measures take their toll.

Weaker growth in other parts of Europe have slowed exports and also tourism. However, exports did rise by 2.2 per cent while imports fell 7.2 per cent.

. Luis de Guindos Economy Minister predicted GDP would shrink by 1.7 per cent in 2012 but grow slightly by .2 per cent in 2013. Other forecasters were less optimistic with Commerzbank analysts predicting that Spain would still be in recession next year with a decrease in GDP of .3 per cent.

Spain's deficit last year was 8.5 per cent of GDP far off the 6.0 per cent agreed to with the EU. Austerity measures are supposed to bring the amount down to 5.3 per cent this year and to the EU ceiling of 3.0 per cent next year. This may be difficult to achieve if not impossible. For more see this article.

Spain: Economic troubles continue but no bailout requested

In spite of the fact that Standard and Poor had just downgraded Spain's credit rating the Minister of the Economy Luis de Guindo in an interview said that Spain was not seeking a bailout. He said:“Nobody has asked Spain, either officially or unofficially” to seek a bailout.

However the Spanish economic situation seems to be going from bad to worse. The unemployment rate is already the highest in Europe but reached a new high of 24.4 just short of the all time record of 24.55 set in 1994. The increase in joblessness for the first quarter will decrease tax revenues by about 1.3 billion dollars exacerbating the debt crisis.

The risk has increased for Spanish debt as bond yields rose above six per cent. This has fueled speculation that Spain may seek rescue. One minister called for the European Central Bank to buy Spanish bonds. However de Guindos stood firm:“This is not the real cure for the problems and the volatility of the market,”“I don’t think that we need any further liquidity injections after the two LTROs that the ECB has implemented over the last three or four months.”
No sooner had de Guindos expressed his views then Standard and Poor cut Spain's credit rating two levels to BBB+ reasoning that Spain will need to provide more money for its banks. This is the second downgrade by S and P this year.

The International Monetary Fund (IMF) predicts that budget deficits will remain in Spain until at least 2017. A 1.8 per cent contraction of GDP is forecast for this year and growth of only .1 per cent next year. For more see this article.

Spain's banks may need more capital if economy deteriorates

Miguel Ordonez head of Spain's central bank warned that if the economy deteriorates Spanish banks might need more capital. Spain's economy is shrinking with unemployment near 24 per cent worse than even Greece.

There has been a surge in loan defaults and the cost of borrowing has increased for the country. Some analysts think that Spain may eventually require a bailout as did Greece but the central bank chief claims there is no talk of that.

Orddonez said:"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,"

Already the economy is predicted to shrink by 1.7 per cent this year but that prediction was before the government slashed another 27 billion euros from spending. Billions more are to be cut to spending in the 17 different regions.

The crisis is a field day for large banks who are gobbling up smaller ones at a fast rate.From around 40 banks the consolidation is expected to end up with less than 12. For more see this article.

Spain borrowing costs upward bound once again threatening any recovery

Spanish Prime Minister Mariano Rajoy says his country is in extreme difficulty. Nevertheless he claimed that the austerity cuts passed by the government are less painful than another bailout would be. At a meeting of his People's Party he said:“Spain is facing an economic situation of extreme difficulty, I repeat, of extreme difficulty, and anyone who doesn’t understand that is fooling themselves,”

Demand for Spanish bonds dropped. Today only 2.59 billion euros were sold ($3.4 billion). This was barely above the minimum amount planned and far below the 3.4 billion euros maximum goal.

The average yield on the bonds was 4.319 per cent up considerably from the 3.376 yield last month. Spain's 10 year borrowing costs are approaching the levels before the European Central Bank decided to make unlimited three year loans to banks last December. For a time this eased borrowing costs.

Rajoy announced back on March 2 that Spain would not comply with the deficit target that the previous government had agreed to with the European Union. Since then Spain's borrowing costs have risen even though Euro-region finance ministers agreed to a new debt target of 5.3 per cent of GDP. The EU target in 3 per cent of GDP but Spain has not managed that since 2007.

Many local administrations are cut out of capital markets and so are financed by the central government. There have been continuing protests against austerity measures including a general strike on March 29th.

The 2012 budget has been presented to Parliament. The budget includes plans to cut more than 27 billion euros from the deficit. Last year the deficit was 8.5 per cent of GDP. This year the target is now. 5.3. Ministries will see their budgets cut by 17 per cent. Such a large cut will no doubt have very detrimental effects on government services.

The unemployment rate is almost 24 per cent the highest in the European Union. The country faces interest payments of nearly 29 billion euros this year. It plans to spend about the same amount on the unemployed! For more see this article.

General Strike called in Spain for March 29 to protest new austerity measures

New measures passed last month by the Spanish government will make it less costly to fire workers, and make it easier for them to be let go. Salaries levels can be lowered unilaterally plus there are other benefits to business at the expense of labour.

Ignacio Toxo of the Workers Commission claimed the reforms were weighted towards business the expense of works. He said the changes bring Spain closer to labor condtions under the former dictator General Franco. In this case though the dictator is finance capital. Toxo said:"It is the most regressive reform in the history of democracy in Spain,"

Spanish banks have agreed to provide $46.35 billion U.S. that will be used to pay off suppliers owed large amounts by municipal and regional governments. The banks also agreed that the would go easy on Spaniards who struggled to pay mortgages.

As in the U.S. Spain has suffered many foreclosures. From 2008 to 20011 at total of 350,000 families have had homes foreclosed and been evicted. This year seems no better. For much more see this article.

Union rallies are to start this Sunday during the midday. Prime Minister Mariano Rajoy had apparently told his EU colleagues the new measures would provoke a general strike. He was correct! Spain has a terrible unemployment rate at 23 per cent. Rajoy admits the rate could go over 24 per cent this year. Unions point out that since earlier labor reforms more than a million more workers have lost their jobs

Spain: Deficit much larger than expected

 The Spanish government announced that the budget deficit for the year would be much larger than predicted earlier. The target was for the deficit to be 6 per cent of GDP. The actual deficit came in at 8 per cent of GDP.
   The Spanish government reacted to the larger deficit by increasing taxes and freezing wages. In addition the government cut public spending by 11.5 billion U.S. The deputy prime minister said: "This is just the beginning ... We're facing an extraordinary and unexpected situation, forcing us to take extraordinary and unexpected measures,"
   An economist at Barcelona University said that the measures would probably make the recession even worse. The defeated socialist government had taken measures that enabled Spain to fare somewhat better than Italy or Greece it now seems as if Spain faces a worsening debt situation as well. For much more see this article.