Madness in Spain
If you still haven’t heard about the problems in Spain, here is a great little article of the madness that took place during the boom years. SPain’s Ibex is currently trading down 2%, and about to break the lows. Italy is joining the hung over period after the boom party. It is all about the Med countries. Wonder what happens if Apple starts selling off for real? From Bloomberg.
“Ireland faced up to its problems faster than others and we expect growth there rather soon,” said Cinzia Alcidi, an analyst at the Centre for European Policy Studies in Brussels. “In Spain, there was kind of a denial of the scale of the problem and it may be faced with many years of significant challenges before full recovery takes place.”
Spain, Europe’s fifth-largest economy, is the current focus of attempts to contain the region’s sovereign debt crisis, as Prime Minister Mariano Rajoy struggles to quell speculation it will need a bailout. Developers are showing similar optimism. They continue to build even with 2 million homes vacant around the country, new airports that never saw a single flight being mothballed, and property appraisers and banks reporting values have fallen only about 22 percent, said Encinar, who estimates the real decline is probably at least twice that.
Ireland, where home prices have fallen a record 49 percent since peaking in 2007, is making more progress as it deals with the legacy of a bust that crippled its economy, once the most dynamic in Western Europe. The state purged lenders of 74 billion euros ($98 billion) of mostly toxic commercial mortgages by creating a bad bank, and poured enough cash into the financial system to make it among the best capitalized inEurope. Building virtually halted overnight in 2008 after debt markets seized up globally.
Spain has so far rejected the bad bank model, even afterStandard & Poor’s last week cut the country’s credit rating to BBB+ from A, on concern the government will need to provide further support to banks.
News That Matters
All you need to read and more below.
Monti’s honeymoon over?
Chart presented without comments, courtesy Scott Barber.
News That Matters
All you need to read and some more below.
Sticking my neck out….
Guest post by Louis Copper of BGC.
If you really want to know what investors are currently thinking, then move away from looking at equities, and turn your attention to government bond markets. These are showing quite clearly that fear is returning. Investors are fleeing for safety and demanding a high price for taking on risk. So today Germany has sold E4.21bn of two year notes at record low yields – at an interest rate cost of just 0.14%. As Journalist Graeme would say “Wowser”. And it comes only eight days after Switzerland sold two year notes at a record low interest rate of negative 0.251% (investors are willing to lend Switzerland more money than they will get back because they so want the safety of the Swiss government). At the same time, borrowing costs for the troubled Eurozone countries are rising fast. A week ago – last Wednesday – Italy sold 361 day bills at 2.84%, more than double the previous rate of 1.405% at an auction in March. And although the Spanish debt auction yesterday is being taken positively (because it managed to sell more debt than anticipated) Spain paid a price for this – again the interest rate was around double that of the previous month. A good test of investor’s confidence in Spain will come tomorrow with the sale of ten year bonds (the boss of the largest bond investment fund in the world, PIMCO’s Bill Gross, said that anyway Spanish bond auctions are mostly sold to Spanish banks – there are few other buyers). However despite rising fear, we are not yet at crisis yet, with 10 year yields on Spanish and Italian debt still 1-2% below the unsustainable 7-7.5% yields of last Autumn. So when will the next crunch come? When will even the local banks in Italy and Spain refuse to buy their own countries debt?
Lost Time
Some good points by The Economist of how badly the economy was struck by the 2008 crisis.
SINCE the financial crisis struck in 2008, the economic output of most of the rich world has stalled. By the end of the last quarter of 2011, GDP in the 34 countries of the OECD was 6.8% lower than it would have been had it continued at its 1995-2007 trend growth rate of 2.7% on average. In monetary terms, that’s $2,200 per person. According to the IMF’s latest economic growth forecasts for the years up to 2017, released on April 17th, it will take OECD countries another 2.7 years to reach its pre-crisis trend level of economic output. Applying these calculations to individual countries level, it is clear that the PIIGS have become particularly stuck in the mud, as can be seen in the chart below.
Chart snapshot
Three charts for the Friday beer. Courtesy Scott Barber of Reuters.
Crisis in the Med (and Europe)
Dummies video clip on the Euromezz. Pay special attention to Italy and Spain as there is more to come in the Med area.
Yanis Varofauakis,a Greek economist featured prominently in the program, alerted me to his comments about the program on his blog. Yanis had this to say [highlight added]:
I very much fear that the viewer was, in the end, short-changed. Yet again the Euro Crisis was reported in a manner that leads the audience to the conclusion that the problem with the eurozone is that some countries accumulated too much debt and that, now, Germany has the unenviable task of bailing them out; a task that puts it in the difficult position of having to impose strict conditions before it dispenses its citizens’ hard earned money. While the program was sympathetic to the suffering Greeks, the underlying analytical message was simple: Bitter medicine must be dispensed, Germany is dispensing it (courtesy of being the only country that has the funds to bail the rest out) and, alas, Greeks and assorted southerners (plus the Irish) are unhappy about the loss of sovereignty involved (an unhappiness that is heightened by the memory of the Nazi occupation).
This analysis is precisely wrong. During my long interview with Steve Kroft (out of which came the snippets that you see in the piece) I put all my energy into offering what I consider to be the true causes and nature of the Euro Crisis; the way that eurozone was constructed, the prior flow of rivers of private (bank created money into the Periphery, the internal imbalances which have been growing in Europe, its dependence on the US deficit etc. Of these, only the statement “we are part of a currency union which was never designed to sustain such a crisis” made it. But disconnected from any explanation of what I meant, and how it pertains to the failure that is the current bailout-austerity policy mix, I suspect that the viewer had no chance of understanding my point, or using my narrative as a counterweight to those of Mr Schauble and Ms Lagarde.
CBS video below. h/t Edward Harrison.
News That Matters
All you need to read and more below.
Italy interesting despite Silvio’s departure
Who said Italy has become boring with Monti? From Mail Online.
A convicted Mafia mobster has been freed early from his 15 year jail term because he is allergic to the vegetables on the prison menu.
Millionaire Michele Aiello, 56, told the judge at a special appeal hearing he was intolerant to beans, peas, spinach and all other types of greens offered to inmates serving time behind bars.
Lawyers acting for the businessman provided medical certificates as evidence in their argument for Aiello to be released after serving little more than a year of his original sentence.
He was arrested in Palermo on the Italian island of Sicily in 2010 and charged with being the financial brains behind a Mafia money laundering operation. (full article here).
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