While Sandy is causing problems in the US, Europe has its own little Sandy. Rajoy and Monti are meeting in Madrid today. This could prove interesting , as these gentlemen are not the best of friends. From Bloomberg.
While both have jointly argued against extra budget austerity as the price for help from theEuropean Central Bank, their interests diverge when it comes to whether they should ask for assistance together. A go-it-alone strategy by Spain would probably cut Italy’s borrowing costs while leaving Rajoy to weather the political flak of seeking emergency funds.
“Rajoy was probably pressed by Monti in August to accept a pre-emptive” bailout, said Gilles Moec, co-chief European economist at Deutsche Bank AG in London. “It would have made things so much smoother in Europe and for Italy as well. Rajoy is very much following his own route now.”
European officials are waiting for Spain to trigger a bailout plan unveiled by ECB PresidentMario Draghi last month and designed to draw a line under the region’s debt crisis. While Draghi’s plan to buy potentially unlimited quantities of government debt has soothed markets for now, a botched Spanish rescue could still trigger further turmoil.
Guest post by Peter Tchir.
Sunday, Sunday, Sunday, Monster Truck Madness….or EU Summit
It is bad enough when you get a song stuck in your head, but today, I have those Monster Truck commercials stuck in my head. The deep voice, pitching the excitement that Sunday, Sunday, Sunday, Monster Truck Madness was coming to your town. Maybe the EU should hire that person because that is about the only way to generate any enthusiasm for this summit.
A plan to create a plan will be done by the end of this year so that it can be implemented in 2013. The reality is the banks have been supervised, just poorly, so this won’t fix much. The plan won’t be implemented in 2013. If you think it is hard for the EU to give money to countries, wait until they squabble over the banks. This will not change anything in the near term and isn’t going to create a system where there is no risk at the banks. In fact, any bank that gets in trouble is now going to be subject to the whims of some bailout crew and creditors won’t be able to rely on the law. Why the market gets excited, I just don’t know.
Spain is on fire. Unemployment is still exploding, especially among youths. We have now reached a stage where protests are part of every day life. People are simply pissed off, especially as Mr Rajoy hasn’t accomplished much since he took over after Zapatero. The blame game is starting. Expect more protests from Spain, and a wind of nationalism. This certainly won’t help the economy. Draghi, what’s next, as the “we buy everything” simply won’t work? With investors all positioned for a QE rally, things could get interesting if Ben’s bazooka backfires.
Guest post by Peter Tchir of TF Market Advisors.
Herding Cats and Obstinate Politicians
The mental image is so clear. Draghi, Hollande, and Obama, wiping the sweat from their brows with dust covered hands, having successfully corralled the Merkel. She’s still feisty and not happy about being in the pen, but they have managed it for now. Job well done, time for a well deserved refreshment after a long day.
It’s only then that they realize the Rajoy isn’t in the pen. They can’t believe their eyes. There is that damn Rajoy sitting on the other side of the river licking his paws preening himself. They cannot believe. They are stunned, flabbergasted, and about to go ballistic.
Seriously, after all the effort to cobble together something that they managed to convince the markets would turn into action is being derailed by the person who is most to benefit?
It is absolutely ridiculous, but it’s not as though they will just give up. They will corral Mr. Rajoy. It is inevitable and the real risk is whether Merkel is able to escape while their attention is focused on Rajoy.
So while it is concerning that Spain is not playing along, I think the pressure brought to bear will be great and Spain will accept something to keep the EU, ECB, and Obama happy.
The Trader wrote about Rajoy when Zapatero was kicked out. We asked ourselves how competent Rajoy was when it comes to solving the Spanish economic mess, inherited by Zapatero. Rajoy, gave a rather muted impression, and has since continued down the same path. Judging by the reforms and the action, Mr Rajoy seems to be stuck in the great Spanish denial, we have covered over the year. Rajoy needs to adress the real economic problems Spain faces, and not simply proclaim “Yesterday, the credibility of the euro won, yesterday the future won. Yesterday, the European Union won.”. A relevant question is whether Rajoy actually sees what needs to be done, or is he trapped in a “fantasy” world, just like Cervante’s Don Quijote. Some more on Rajoy’s credibility, by Bloomberg.
He clearly doesn’t get it,” said Gary Jenkins, founder of Swordfish Research Ltd. near London, who has tracked bond markets for more than 15 years. “Spain needs someone who can come in and grasp the seriousness of the situation and react to that, not just pretend everything’s okay.”
Then, he announced that since the banks’ funding problems were resolved he would continue with his plans to watch the national soccer team play that night and climbed aboard his government jet to fly to the Polish city of Gdansk.
“To avoid some things from leaking, I don’t even let them cross my mind,” Mariano Rajoy tells his closest aides from time to time. This phrase captures the essence of a man who lives by the political principle of “wait and see” – a man who likes to let things sort themselves out.
Rajoy’s great problem is that he is no longer leader of the opposition — that is to say, someone who can make any speech he likes, or none at all, with hardly any consequences. Since December 21, 2011 Rajoy has been Spain’s prime minister, and his audience is global. He is no longer just talking to his constituency – now, Barack Obama is listening.
Ever since Rodrigo Rato’s “resignation” as chief of Bankia, the recently nationalized bank, the government has been accumulating political errors and communication mistakes, all of which have undermined Rajoy’s image as a capable, efficient leader.
With Spain dominating the news these days, let us dig deeper into the political elite running the show. Many have heard of the new president, Mr Rajoy, Bankia and Mr Rato, but what have these gentlemen produced prior to leading the country and forming Bankia? Simply must read by Golem on Spanish conquistadores in modern times.
Let me make it clear straight away – the lies, corruption, cowardice and greed of Spanish bankers and government officials is nothing special. What is happening in Spain now, reminds me of Northern Rock in the UK, Hypo in Germany and CountryWide in the US. So please do not think that I dislike Spain or of the ordinary people of Spain. The people I detest in Spain are the same people I detest in Britain and every country: The Cabal of corrupt Bankers and Political parasites.
Every country will have its moment in the spotlight. Italy is preparing in the wings as we speak. But today, on the Eurofiscal Corruption Contest, Spain is on stage.
It is the mantra of the main political parties and media across Europe, that the present crisis is the result of too many people taking on loans they could not afford. Neither the bankers nor the politicians, according to the accepted story, saw the crisis coming or could have seen it coming but have been engaged in heroic attempts to rescue us from a crisis of our own making. THIS IS NOT TRUE.
Spain’s Rajoy pulls the magic move over the weekend by requesting the bail out (more to come according to The Trader). Discounting this as massively good news could prove rather dangerous. The Spanish economy is in a much bigger mess than only needing 100 billion Euros. The zombie urbanizaciones won’t be helped much by this small bail out. In order to fill up those + 1 million empty properties, prices need to come down much more, and that won’t be met by the 100 billion bail out. For now, enjoy the Risk On mood credited to Rajoy. From El Pais.
After being widely criticized for failing to appear in public on the day that Spain accepted a European Union bailout for its debt-ridden banking sector, Prime Minister Mariano Rajoy improvised a brief press conference on Sunday to explain the financial rescue package before flying off to Poland for the Euro 2012 soccer match between Spain and Italy.
In his first solo address to the media since he was elected last November, the always-cautious Popular Party (PP) leader took care to avoid using the word bailout, and instead talked about “a loan” and even “yesterday’s event” to describe the agreement with the Eurogroup of financial ministers to prepare a bailout to clean up Spain’s financial sector.
Al Jazeera on the Spanish messy situation.
Eurozone finance ministers will hold a conference call on Spain’s expected request for aid to shore up its distressed banking sector, European government sources said.
The eurozone greenlighted the “holding of a teleconference of the Eurogroup on Saturday at 4:00pm (1400 GMT) to agree a declaration on Spain’s intention to request aid and the Eurogroup’s commitment to granting it,” a European government source said.
The move came as the International Monetary Fund released a report on Friday which estimated that Spanish banks need at least a 40bn euro (about $50bn) capital injection following a stress test it performed on the country’s financial sector.
“Reports we are getting from various sources suggest that there will be this conference call from Brussels between the 17 finance ministers of the eurozone, the so-called eurogroup. The Spanish finace minister will be among them,” said Al Jazeera’s Jonah Hull, reporting from Madrid on Saturday
“What we believe they will be discussing is the sort of size and shape of the terms attached to a possible bailout for Spain, to inject fresh capital into its banks.
“All that Madrid has to do is ask for that bailout, under the rules of course they have to ask for a bailout to be put into action. (Full article here).
Rajoy inherited Zapatero’s mess, but what is Rajoy’s plan to save Spain from the abyss? The day to day job seems to be concentrated around bringing the risk premium down, providing promises with regards to the banking sector, bringing down unemployment and much more. The real problem is,all of the above are actually going the totally opposite direction. Risk premium is spiking higher, the arguments “our banks are fine” are breached s few days later (Bankia needs more…) and the unemployment is breaking further into uncharted territory. Rajoy is trapped in a vicious circle, as the Spaniards are starting to lose their temper. From El Pais.
If there was ever a plan, there’s no trace of it left. All of the government’s forecasts have come up short. Just a few weeks ago Prime Minister Mariano Rajoy, of the Popular Party (PP), was promising that there would be no public money for the banks. But Bankia alone will now be receiving 23.5 billion euros in public funding to save it from disaster. That’s after Economy Minister Luis de Guindos said on Monday that the amount would be no more than seven billion. On Friday, Deputy Prime Minister Soraya Sáenz de Santamaría was calling it a loan. On Saturday, Bankia’s new chairman, José Ignacio Goirigolzarri, explained that it is a capital injection, not a loan. In other words, the state is investing in Bankia, and only if things go really well will it recover its money — that is to say, the taxpayers’ money.