Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB
Silver's Relationship with Gold Reaching Historical Extremes - 16th Sep 18
Emerging Markets to Follow and Those to Avoid - 16th Sep 18
Investing - Look at the Facts to Find the Truth - 16th Sep 18
Gold Stocks Forced Capitulation - 15th Sep 18
Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - 15th Sep 18
Trading The Global Future - Bad Consequences - 15th Sep 18
Central Banks Have Gone Rogue, Putting Us All at Risk - 15th Sep 18
Gold Price Seasonal Trend Analysis - 14th Sep 18
Growing Number of Small Businesses Opening – and Closing – In the UK - 14th Sep 18
Gold Price Trend Analysis - Video - 14th Sep 18
Esports Is Exploding—Here’s 3 Best Stocks to Profit From - 13th Sep 18
The Four Steel Men Behind Trump’s Trade War - 13th Sep 18
How Trump Tariffs Could Double America’s Trade Losses - 13th Sep 18
Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - 13th Sep 18
Trading Cryptocurrencies: To Win, You Must Know Where You're Wrong - 13th Sep 18
Gold, Silver, and USD Index - Three Important “Nothings” - 13th Sep 18
Precious Metals Sector On a Long-term SELL Signal - 13th Sep 18
Does Gambling Regulation Work - A Case Study - 13th Sep 18
The Ritual Burial of the US Constitution - 12th Sep 18
Stock Market Final Probe Higher ... Then the PANIC! - 12th Sep 18
Gold Nuggets And Silver Bullets - 12th Sep 18
Bitcoin Trading - SEC Strikes Again - 12th Sep 18

Market Oracle FREE Newsletter

Trading Any Market

Spain Committing Financial Suicide to Appease Big Finance, Marching Towards Depression

Politics / Eurozone Debt Crisis Apr 16, 2012 - 03:12 AM GMT

By: Mike_Whitney

Politics

Best Financial Markets Analysis Article“Other countries have gone through similar experiences. Latin American countries suffered a lost decade after 1982, and Japan has been stagnating for a quarter of a century; both have survived. But the European Union is not a country and it is unlikely to survive. The deflationary debt trap threatens to destroy a still-incomplete political union.” George Soros, Financial Times


Money might “make the world go ’round”, but it’s not going to stop the eurozone from breaking apart. That’s the lesson investors learned on Tuesday when global stock markets plunged on news that yields on Spanish and Italian debt had again entered the red zone. Stocks rebounded on Wednesday, but to little effect, after all, the cat is out of the bag. Now everyone knows that the European Central Bank’s 1 trillion euro ”adrenalin rush” (Long-Tern Refinancing Operation or LTRO) is a short-term fix that won’t relieve the debt troubles of struggling countries in the south or even reduce the prospects of a vicious credit crunch in the second half of the year. (As of Friday morning, Spanish 10-year bond yields are back in the nosebleed section, 5.92 percent, a rate which most economists see as “unsustainable”.)

So, what exactly did the LTRO achieve anyway?

Not much, it appears. While the lavish 3-year low interest loans allowed a significant number of underwater banks to roll over their debts; it did not address the eurozone’s institutional flaws, or –as economists Simon Tilford and Philip Whyte say– “reverse the increasingly perverse and self-defeating policies that the region is pursuing.” Policymakers in Frankfurt and Brussels have refused to heed the warnings of competent economists and other experts who’ve reiterated ad nauseam that “a monetary
union outside a fiscal union is deeply unstable.” What’s needed is greater “fiscal integration and debt mutualisation” they advize. But the ECB will have none of it. The Central Bank has decided to pursue its own blinkered strategy and use the crisis to push through excruciating anti-labor and privatization reforms that will help to divert more capital to big finance. The results speak for themselves. Spain is marching headlong into a depression.

To say that Spain’s financial situation is dire would be an understatement. According to International Finance Review:

“Covered bond syndicate bankers are expecting weak jobs data out of the US and a persistent deterioration of Spanish bank credit to weigh heavily on the new issue market for the foreseeable future. It’s a backdrop that is likely to lock Spanish banks out of the primary market and deprive the country’s banks of a funding plan B, according to one banker….

“The Spanish are completely shut out of the market,” said a covered bond trader. “You won’t get any momentum for a deal, and for investors, they have no incentive to buy into a deal when the market is declining.” (“Spanish banks face funding lock-out”, IFR)

Also, while unemployment across Europe has risen to its highest point in more than 14 years, (17.3 million people) in Spain, joblessness has soared to 23 percent, and among young people, it’s nearly 50 percent. An entire generation is being sacrificed so the 1 percent can grab a greater portion of the wealth.

If Spain is unable to manage its finances due to rising bond yields, then the eurozone will surely fail. The country is simply too big to bail out. It’s more than twice the size of Greece, Ireland and Portugal combined. And Spain’s three largest banks — Banco Santander, BBVA, and La Caixa, “have combined assets of about $2.7 trillion. Spain’s GDP is just about $1.4 trillion. In other words: Spain’s three biggest banks are nearly twice as big as the entire Spanish economy.” (CNBC)

Spain’s problems go far beyond its collapsing real estate market, its skyhigh unemployment, its widening debt-to-GDP ratio, and its teetering banking system. A historic structural adjustment program (“Austerity measures”) implemented by newly-elected Prime Minister Mariano Rajoy has accelerated the rate of decline by slashing spending and thrusting the economy into a deflationary spiral. Here’s a clip from Bloomberg:

“Under EU orders, Spain is promising what might be the tightest fiscal squeeze that it or any other European economy has ever faced. The new plan calls for the budget deficit to fall from 8.5 percent of gross domestic product to 5.3 percent this year. Since the economy is already shrinking, this requires a discretionary fiscal tightening of roughly 4 percent of GDP — with the unemployment rate already standing at about 23 percent.” (“Spain Not Greece Is the Real Test for the European Union,” Bloomberg)

This is fiscal suicide authored by rightwing fanatics who want to use the ongoing crisis to impose their own business-friendly economic model on Europe. As journalist Pepe Escobar says in a recent article, (It’s) “a counter-reformation that erases with a single stroke many labour and union rights acquired by the working class in decades and generations”. That includes extremely harsh cuts in health, education and social services….”

Here’s more from Escobar:

“The catalogue of Spain’s “austerity” is the usual catalogue of neoliberalism in trouble. A previous, nominally socialist and now an ultra-conservative government have furiously decimated unemployment, retirement and severance benefits; turned virtually all labour contracts into precariousness hell; steeply raised fees for education and transportation; vastly militarised the police; and spent fortunes to bail out banks….” (“All the pain in Spain”, Pepe Escobar, Aljazeera)

Now that the ECB’s lending program (LTRO) has failed and Spanish banks are more indebted than ever (Spanish banks borrowed more money from the ECB than any other country—227.6 billion euros or $300 billion); what’s next?

For starters, ECB president Mario Draghi will be forced to revive the vastly unpopular Securities Markets Program (SMP) and purchase more Spanish debt outright. Investors will see this as a sign of desperation since Draghi scotched the idea of reviving the program just last week. Now he will have to reverse himself and hastily resume the EZ’s version of QE.

Restarting the program will set off fireworks in Berlin where hardliners at the Bundesbank will fight tooth-and-nail to stop Draghi in his tracks. Even so, the wily ex-G-SAX managing director Draghi will undoubtedly outmaneuver his rivals and the bailout will go forward. That means big finance’s plan to crush organised labor, savage the social safety net and reduce EZ workers to a life of debt peonage will continue apace.

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2012 Copyright Mike Whitney - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Mike Whitney Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules