Guest post by Marc Chandler of Marc to Market.
The independent audit carried out by consultant Oliver Wyman estimates the Spanish banking sector needs additional capital of 53.745 billion euros to shore up balance sheets because of its exposure to the ailing real estate sector if the consolidation currently taking place among lenders is taken into account, the Bank of Spain said Friday.
The central bank says that without taking into account merger and acquisition processes that are under way and deferred taxes, the figure amounts to 59.3 billion euros, very close to the initial estimate in June by Oliver Wyman of 60 billion euros.
The government has been granted a loan of up to 100 billion euros from its European partners to bail out the sector. The administration is hopeful that some of the banks that need more capital will be able to raise funds privately, reducing the final amount required to 40 billion euros. The consultant carried out stress tests on the country’s 14 main lenders that account for 90 percent of the Spanish banking sector’s assets under different adverse scenarios. (Full article here. )
But that’s not all, remember, the Catalans are furious.
We have all heard how Germany has benefitted by being part of the EZ. The question is, what if this is not true, and Germany leaves the Euro? The conclusion via Peakprosperity, but we urge you to read the full article as well. Wow, that chart looks uncontrolled…..
In short, it has become obvious to many people from all walks of life in Germany that the euro has done them no good, and, far from reaping benefits, they are actually less wealthy as a result of it. Therefore, the brash assumption fostered by the debtor nations that Germany can and will pay is simply incorrect, even if we stick to the headline numbers. But we all know that a government budget deficit is only the tip of an iceberg. For Spain and Italy, we must also consider rapidly escalating off-balance-sheet liabilities, the financial difficulties of local governments, and central government guarantees for nationalised and other supported industries. Government liabilities can be doubled or even tripled – who knows? Our experience of Greece’s troubles has confirmed that an initial few tens of billions, which Deo volente was enough, turned out to be only the first of a series of ever-increasing demands. If Greece is to be regarded as a learning experience, Spain will certainly be impossible to support, given that she shows no sign or even any prospect of economic recovery.
We hate to break it to you. Spain is not fixed, despite Draghi and Rajoy claiming so. IBEX is in free fall mode, yields pushing the 6% barrier, people feeling the austerity pinch, and now the latest, getting hammared by the police. Spain, everything under the sun….From Mail online.
Anti-austerity demonstrators clashed with riot police in Madrid last night.
More than 1,000 officers blocked off access to the parliament building after protesters vowed to ‘occupy Congress’ in the heart of the Spanish capital.
Police baton-charged the crowd and there were reports that protesters were being beaten by officers.
Stiglitz reminds us again.
“If you don’t do that, you have this adverse dynamic: the weak countries get weaker and the whole system falls apart,” Stiglitz said today in an interview in Geneva. “And this has to be done fairly quickly” because in a couple of years, “there won’t be any money in Spanish banks.”
Full video below.
Must read on the doomsday cycle. Via Voxeu.
Industrialised countries today face serious risks – for their financial sectors, for their public finances, and for their growth prospects. This column explains how, through our financial systems, we have created enormous, complex financial structures that can inflict tragic consequences with failure and yet are inherently difficult to regulate and control. It explains how this has happened and why there are more and worse crises to come.There is a common problem underlying the economic troubles of Europe, Japan, and the US: the symbiotic relationship between politicians who heed narrow interests and the growth of a financial sector that has become increasingly opaque (Igan and Mishra 2011). Bailouts have encouraged reckless behaviour in the financial sector, which builds up further risks – and will lead to another round of shocks, collapses, and bailouts.
This is what we have called the ‘doomsday cycle’ (Boone and Johnson 2010). The cycle turned in 2007-8 and was most dramatically manifest in the weeks and months that followed the fall of Lehman Brothers, the collapse of Iceland’s banks and the botched ‘rescue’ of the big three Irish financial institutions.
The consequences have included sovereign debt restructuring by Greece, as well as continuing problems – and lending programmes by the IMF and the EU – for Greece, Ireland, and Portugal. Italy, Spain and other parts of the Eurozone remain under intense pressure.
Yet in some circles, there is a sense that the countries of the Eurozone have put the worst of their problems behind them. Following a string of summits, it is argued, Europe is now more decisively on the path to a unified financial system backed by what will become the substance of a fiscal union.