Wednesday, 30 May 2012

Time for another bailout

Spanish retail sales plunged fell almost 10 percent last month. Think about that number for a moment. The Spanish retail sector just fell off a cliff. In the space of one month, Spanish shops lost a tenth of their business.

The collapse of Spanish retail spending neatly complements the news from the country's banking sector. One of its largest banks - Bankia - demanded a €19 billion cash injection from the Spanish government. The company restated its 2011 accounts, effortlessly moving from a previously announced €41 million profit to an updated and corrected €3.3 billion loss. Thankfully the bank's management didn't suffer. They trousered a €22 million bonus payment.

However, the cash injection for Bankia isn't working out. The Spanish government wanted to inject government bonds into the bank, who could then use the paper to go to the ECB and get cash. The European Central Bank didn't like the idea, claiming that the scheme meant that the central bank would end up financing the Spanish fiscal deficit; something expressly forbidden in the ECB charter. So Spain has a massive broken and busted bank and doesn't know what to do.

It won't be a problem that need concern Bank of Spain Governor - Miguel Angel Fernández Ordóñez - he is leaving the bank to focus on his olive trees. Meanwhile, Spanish bank deposits are flowing out of the banking system and heading north to Germany.

So where does this leave Spain? The real economy is imploding; its banking sector is exploding; government bond yields are on a rocket heading for Mars; and equity prices are sliding into the abyss. To put it a little less prosaically, Spain is in trouble.

It is time for yet another Eurozone Bailout.


Admin said...

That is a good kind of collective information and helpful for all of us. I also have that kind of information.

Unknown said...

droog said...

Six months ago the ECB was all for lending money to banks so that they could buy sovereign bonds. They lent 490 billion euros to many banks. Now they feel this proposal is different. There's no logic to it from an accounting point of view; you could just add 20 billion extra to the 490 billion from six months ago. It's merely that the ECB resent being bossed around by a government.

The end result is that the ECB seems to feel a collective bailout was needed but Bankia's bailout is not. Maybe the ECB are right. But if they are wrong and Bankia turns out to be the Iberian Lehman Bros. then today's 20 billion deal will seem like small change compared to the measures the ECB will need to take to avoid a collective collapse.

Meanwhile Spanish unemployment is at 25% but you don't see financial papers being scandalised by this. How can a government raise revenue to meet its debts with a quarter of its workforce taking money out of the system instead of putting into it? No bailout of any kind is ever going to work if this keeps up in Spain and elsewhere.

Electro-Kevin said...

I can see a bull run happening in Spanish markets.

Elby the Beserk said...

EK. I can't bear comments like that :-)

Poor old Miguel Angel is going back to his olive groves with the price of olives at a record low. Must have the magic touch. Were I smarter, I'd offer to destroy these banks for much smaller bonuses than are currently being dished out. €500,000 for guaranteed bailout status? Roll up, roll up.