Spain's ailing banks threaten country's finances

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Spain's ailing banks threaten country's finances | Comcast

Spain is under rising pressure to find a lifeline for its deeply troubled banks.

Politicians in Europe and investors around the world are worried that the recession-hit country can't come up with the money needed to save its banks without bankrupting the government. Expectations are rising that Spain's leaders will have to seek an international bailout for banks crumbling under the weight of bad real estate loans.

As Spain's leaders struggle for a solution to their banking crisis, the country's borrowing costs have soared close to the level that forced the governments of Greece, Portugal and Ireland to seek financial rescues.

Hanging by a thread........

 

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Puttin' the financial finger in the dike...

Massive bailout for Spain may only be stopgap measure
10 June`12 -- Euro zone finance ministers rushed Spain into an EU-funded rescue for its debt-stricken banks to pre-empt the threat of a bank run if Greece's debt crisis flares again but any respite for Madrid and the euro may be short-lived.

After weeks of insisting that Spain needed no assistance to recapitalise lenders crippled by bad debts from a burst real estate bubble, Prime Minister Mariano Rajoy was pushed into requesting an aid package for fear of worse disaster to come, European officials involved in the negotiations said. The 17-nation currency area agreed to lend Madrid up to 100 billion euros ($125 billion) for its bank rescue fund, more than an initial audit suggests it is likely to need, in an attempt to reassure investors and erect a new firewall in the crisis. But the euro zone's latest line in the sand, after bailouts for Greece, Ireland and Portugal since 2010, could be swept away as early as next Sunday by angry Greek voters, rekindling market turmoil that would hit Spain and Italy first.

Rajoy said his reforms had spared Spain a full rescue for its public debt but some analysts say the bank aid may only be a prelude to an eventual bailout of the state. After less than six months in office, the conservative premier is desperate to avoid that stigma, while other European leaders are just as desperate to avoid the cost, which would stretch the euro zone's rescue funds to the limit. Unicredit chief economist Erik Nielsen said once the banks had been recapitalised, "they have basically addressed the three key weaknesses: banks, regions, and structural weaknesses".

Others are less confident. "The burden of recapitalising insolvent banks or loss-making acquisitions of solvent banks will fall on Spanish citizens," said Karl Whelan, economist at University College, Dublin. "For this reason, this weekend's announcement may well end up shutting Spain out of the sovereign bond market." The euro zone's fourth largest economy is beset by recession and mass unemployment and still has a weight of national and regional debt to roll over later in the year, although it has got through 58 percent of its borrowing for 2012.

Moody's Investor Service said last week the debts of euro area sovereigns dependent upon official funding present "non-investment grade risks", prefiguring a likely cut in Madrid's credit rating. Fitch Ratings slashed Spain by three notches to BBB last week - just above junk status. The government still needs to refinance 47.3 billion euros of debt maturing by the end of the year, with a big hump at the end of October, and Spain's overspending regions have a further 15.7 billion euros of debt maturing in the second half of 2012. "We're very close to junk bonds and we'll end up in the junk," Jose Carlos Diez, chief economist at Intermoney in Madrid, said on Spanish television. "In this situation, the key is to look at the reaction of investors and see if capital flight stops ... If the process doesn't stop, there will be more funding problems and what we will see is a bailout that is starting small become a big one."

Greek countdown

 

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Now Spain threatenin' the world economy...

New Eurozone Focus: Spain's Debt, Economy
July 23, 2012 > The debt-ridden Spanish government and the country's troubled economy are the newest face of the European debt crisis.

Stock markets across Asia, Europe and the United States plunged on Monday on fears that Madrid will need an international bailout after the country's borrowing costs soared above the level at which Greece, Ireland and Portugal all were forced to secure rescue packages. Economy minister Luis de Guindos denied that Spain would need help beyond the $122 billion package Europe has already sanctioned for the ailing Spanish banking system. But as Spain's autonomous regions sought new assistance from the central government for their own debt woes, interest rates on Spanish debt jumped to more than 7.5 percent, the country's highest level in the 13-year history of the euro currency union. The interest rate is well above the seven percent level that pushed the Greek, Irish and Portuguese governments into bailouts.

Spain's stock market fell sharply Monday for the second straight day of trading. Officials attempted to curb the freefall, banning the practice of short-selling of financial stocks for three months, on the theory that it contributes to a declining market. In short-selling, investors bet that the price of stocks will fall, borrowing stock from a broker, selling it, and then attempting to buy it back at a cheaper price, to pocket the difference. Spain has imposed sharp austerity measures, cutting government spending and increasing taxes. Thousands of workers have taken to the streets in recent days in protest, but the government says the changes are necessary to rein in the government's deficit. The underlying problem for Spain is its weak economy. Spain has the fourth largest economy in the 17-nation eurozone, but about a fourth of its workers are unemployed.

Its economy also is contracting, not growing. In a new report, the central bank said the country's economy shrunk four-tenths of a percent in the April-to-June period, with the government predicting that the decline will continue into next year. Additionally, there is renewed eurozone attention on Greece and Italy. Auditors from the European Union, the European Central Bank and the International Monetary Fund are gathering in Athens to take a new look at the government's efforts to impose budget cuts so it can receive more money from the country's second bailout in two years. Greek Prime Minister Antonis Samaras on Sunday compared the financial woes of his country to that of the United States during its Great Depression in the 1930s.

Italy, another country with burgeoning debt, also is facing an increase in its borrowing costs. Economics professor Nicola Borri said the Spanish economic upheaval has directly affected the interest rate Rome is paying on its debt. "So it is not clear right now, if the 100 billion euros that Europe has pledged to save Spanish banks will be able to stop the banking crisis that is right now happening in Spain, and it is not clear yet which is the real trouble in the Spanish provinces. So I think that this uncertainty at the Spanish level is definitely affecting our market as well," said Borri.

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