Wednesday, July 11, 2012

Spain's Punishment

  Over the last few days, the EU's finance ministers have huddled in Brussels to determine the terms of the $120 billion bailout of Spain's banking system. Many people, myself included, thought that Spain would get off lightly, especially given the support new French President Hollande seemed ready to give them. It was not to be.

  Lets remember that Spain's unemployment rate is 25% and rising. For those under 25 years old, the unemployment rate is already 52%. Yes-- half of all young people are unemployed. Probably a third of the remaining half are under employed. Spain's economy this year is contracting, and their tax revenue is in decline due to lower and lower sales tax revenues.

  About an hour ago,. the Spanish newspaper El Pais leaked the EU's terms:

* EU takeover of the Spanish banking system
* Calls for $80bln in losses for junior & hybrid debt
* A "bad bank" to wind down the banks losses
* On site raids by "inspectors"
* Rise in the VAT tax from 18% to 21%
* $80bln in additional "austerity measures"

  I have no earthly idea what the EU thinks it's going to solve by this. These measures will further slow down the Spanish economy, especially the spending cuts. These cuts will result in further unemployment and bank losses as yet more businesses go under. Nevermind that these terms are actually quite humiliating to a proud nation and its people. Worse yet, many of the "junior and hybrid debt" people, who just got shafted, are working Spaniards who will soon find out that their "safe" investments are a memory. The Spanish people, upon hearing this, have begun rioting in Madrid as I type this. Here's a chart out today documenting capital flight out of Spain, which is a huge problem that shows no sign of abating:
                                                                             

  At some point, a nation must decide whether it is worth it to save the bankers at the expense of the people. Rather soon in their own crisis, the government of Iceland decided to side with its own people. In a nation with unemployment already at Depression levels, I have to believe that patience is wearing very thin in Spain. When it snaps, my "Worse Case Scenario" becomes disturbingly probable: http://themeanoldinvestor.blogspot.com/2010/05/update-523-worst-case-scenario.html

39 comments:

  1. Rock, meet hard place.

    ReplyDelete
  2. I'm sorry, there is no more money.
    Spain (as most countries) spends more than it earns.

    Did you, they, or anyone think this could continue indefinitely?

    The only question is if Spain and other EU members lose their sovereignty to the NWO types as they get played like a fish on a line.

    Either pull an Iceland or bow your heads as serfs. Either way involves pain, however the first option has as endpoint while the latter means perpetual serfdom as you've given up self rule to a central banking committee and "super" EU president.

    ReplyDelete
  3. "I have no earthly idea what the EU thinks it's going to solve by this. These measures will further slow down the Spanish economy, especially the spending cuts."

    The borrowing will stop, therefore, so will the spending. Unearthly ideas may be found in the EU's view of existing debt.

    ReplyDelete
  4. The pain in Spain falls mainly on the poor. Sadly this will be played out all over Southern Europe like a death from 1000 cuts.

    ReplyDelete
  5. Back when I had more channels I'd watch the Home & Garden Network and the 'HouseHunters' show. People from the UK and north countries all wanted to go 'pick up' a nice vacation house in Spain, Greece, etc. The cost was ridiculous. Much like people here sucked into time shares and second houses (that they can't afford) did Spain build and build for these people? Did it overshoot the greed factor? Did no one ever think?

    Good times are here again...yeah, but they only come after bad times.

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