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Spain Requests 37bn Euro Bank Bailout
Spain’s banking sector suffered heavy losses on loans to home buyers and property developers when its property bubble burst.
Spain has officially requested an EU bailout worth 37bn euro for four of its struggling banks.
The European Commission approved plans to use the capital to restructure Bankia, Catalunya Banc, NCG Banco and Banco de Valencia.
Spain’s banking sector suffered heavy losses on loans to home buyers and property developers when its property bubble burst.
In September official figures from the Bank of Spain showed that 10.7% of total banks’ balance sheets were made up of “doubtful debtors”, those whose loans may not be repaid.
Earlier Articles from around the world:
Speculation that Madrid could soon seek a formal bailout has been fuelled after Spanish leader Mariano Rajoy signalled that the country could fail to meet its budget targets for this year.
Although Madrid has promised to reduce its budget deficit to 6.3 per cent of GDP from 8.9 per cent in 2011, Rajoy appeared to be warning his euro-zone colleagues that this is unlikely to be achieved.
“Spain was asked to make a very difficult effort … in only one year”, he said in an interview with the Spanish newspaper La Razon on Sunday. “It’s very complicated to reduce the deficit by 2.6 percentage points of GDP in the context of recession”.
Brussels has already agreed to relax Spain’s deficit targets for this year. After initially setting a target of 5.3 per cent, it agreed on a 6.3 per cent target. But with the Spanish economy set to shrink by 1.4 per cent this year, and with the jobless rate already above 25 per cent, Spain’s long-suffering population appears to be losing patience with austerity.
All the same, the Spanish government is continuing to push ahead with budget-cutting measures. Last week, it went back on its pledge to preserve Spanish pensions by announcing that from January 2013, pension payments would only rise by 1 per cent (or 2 per cent for those on lower rates), which is well below the country’s 3 per cent inflation rate. This will not only hit Spanish pensioners, but also the young people they care for.
A recent Spanish government survey found that nearly half of Spanish grandparents look after their grandchildren daily, and that 70 per cent of them take charge of their grandchildren during school holidays.
For many observers, Rajoy’s comments signalled that Spain, which about to get €37 billion ($US48.3 billion) to rescue its banks, could be about to seek a general bailout.
The comments came ahead of a meeting of euro-zone finance ministers in Brussels to discuss the release of the next €44 billion aid payment to Greece. Athens will only be able to receive the money if its plans to trim its massive debt burden by buying back bonds at a hefty discount are successful.
Overnight, Athens offered up to €10 billion to buy back as much as half of the €62 billion of bonds held by private creditors, offering a maximum price of 32.2 to 40.1 European cents on the face value of the debt.
Greece is hoping that with its €10 billion it can attract offers of as much as €30 billion of bonds, shaving €20 billion off its debt pile. The International Monetary Fund has signalled that it will refuse to release Greece’s next aid payment unless the debt buyback reduces the country’s debt burden.
Euro-zone finance ministers also preparing for the imminent rescue of Cyprus, which is estimated to require a bailout of more than €15 billion, of which €10 billion will go to recapitalising the country’s stricken banks.
This is a huge amount for a country whose entire GDP is only €18 billion. Indeed, the bailout will push country’s debt level to more than 180 per cent of GDP, which is considered unsustainable. As a result, there is an increasing likelihood that Cyprus’s debt will also be restructured, with private sector lenders again forced to accept hefty losses.
KAREN MALEY
On Sunday
MADRID — Spanish Prime Minister Mariano Rajoy admitted Sunday it would be difficult for the government to meet its deficit-reduction targets despite a raft of austerity measures, as thousands of disabled people staged a noisy protest over cuts to their benefits.
“It is very complicated to reduce the deficit by 2.6 points in a context of recession, with as many problems with revenue and such high financing costs,” Rajoy said in an interview published in La Razon newspaper.
“Spain was asked to make a very difficult effort, to go from 8.9% to 6.3% in only one year,” said Rajoy, who has until now pledged to respect the public deficit target called for by the European Union.
“Our goal is to do things well and we will see what will happen at the end of the year,” he said.
Spain, the fourth-largest economy in the eurozone, is engaged in a deep austerity program and is seeking to recover 150 billion euros ($195 billion) between 2012 and 2014, through both tax increases and budget cuts.
The task is all the harder as Spain slid back into recession at the end of 2011, less than two months after re- emerging from the previous one.
In the latest anti-austerity demonstration in Spain, thousands of handicapped people and their families joined a protest in Madrid against budget cuts in the health sector affecting their benefits.
Blowing whistles, beating drums and waving small white flags symbolizing an SOS call, they shouted slogans such as ” You’ll do us in with so many cuts.”
The demonstrators, some of them wheelchair-bound, others blind and accompanied by their guide dogs, included Paralympic athletes.
More than four million of Spain’s 47 million people are handicapped, according to disability campaign group CERMI.
“They’ve taken away the right of people who cannot fend for themselves to receive aid and be independent, like everyone else, which is a vital right for us,” said one demonstrator, Lola Valverde, 65.
Valverde, who is confined to a wheelchair, said that after having her benefits cut in half this summer, she could now only afford home help once a week instead of daily, as she had in the past.
Since sweeping to power in the November 2011 election, Rajoy has introduced a series of tough spending cuts and tax hikes to slash the deficit and stabilize Spain’s public finances.
In the health sector alone, his government is trying to make cuts of seven billion euros a year, a target that will hit the budgets of regional governments.
Even though market pressure has eased since a peak in the summer, Spain still faces punishing borrowing costs, with interest rates exceeding 5%.
Under its draconian austerity drive, the government broke a key election commitment on Friday when it said it would not raise pensions in line with inflation in 2013.
Rajoy said Sunday that the decision was “imposed by reality,” adding: “It’s probably one of the hardest decisions I’ve had to make.”
The disabled people’s protest came a day after about 1,000 people who say banks cheated them of their savings took to the streets demanding that the bailed-out lenders give them their money back.
“Thieves! Where is our money?” they bellowed outside the central bank in Madrid before marching on the offices of Bankia, the ruined finance giant.
Spanish banks were brought low by the collapse of a construction boom in 2008 that threw millions into unemployment and poverty. Spain is deep in recession, with one in four workers unemployed.
AND IF AMERICA GOES ????
FISCAL CLIFF RISKS…..The Euro currency
Despite the euro recovering from falls after ratings agency Moody’s downgraded the euro zone rescue funds late on Friday , the single currency looked vulnerable to continuing concerns about how the euro zone will deal with its debt crisis and worries about the U.S. “fiscal cliff.”
If Congress and Washington cannot reach a deficit reduction deal by the end of the year, massive U.S. government spending cuts and tax rises will be unleashed in early 2013. Many economists believe this “fiscal cliff” has the potential to tip the U.S. economy back into a recession.
Signs policymakers are struggling to reach an agreement to avert that scenario could boost demand for the highly liquid dollar, which is considered a safe-haven currency.
“Resolution of the U.S. fiscal cliff still seems some way off, and it is increasingly likely that a comprehensive agreement will be delayed into the new year, meaning the economy may go over the cliff in January only to be hauled back up again soon after,” said Simon Hayes, analyst at Barclays Capital.
The yen has been under pressure on expectations that a likely change in Japan‘s government later this month would lead to aggressive monetary easing.
The dollar last traded down 0.3 percent against the yen at 82.25.
Manufacturing UK news
(Reuters) – British manufacturing activity shrank less than expected in November but remains fragile, surveys showed on Monday, just two days before finance minister George Osborne presents a half-yearly budget statement.
Weak growth means public borrowing is not falling as Osborne planned earlier this year, and initial figures from a flagship Bank of England scheme to boost lending also released on Monday suggest any big benefit from this source is several months away.
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- Rajoy’s Path to Bailout Clears as EU Endorses Austerity (bloomberg.com)
- Spain Deterred From Bailout Request as EU Questions Deficit Plan (bloomberg.com)
- Spain Cash-Starved States Nudge Rajoy Toward Rescue: Euro Credit (bloomberg.com)
- Disabled protest about Spain’s austerity (bigpondnews.com)
- More pressure on Spain’s economy as separatists win key election – Globe and Mail (theglobeandmail.com)
- Spain warns over deficit goal amid new protests (thenewstribe.com)
- Spain’s fantastical deficit forecasts (ftalphaville.ft.com)
- Rajoy’s Deepening Budget Black Hole Outpaces Spain’s Cuts (bloomberg.com)
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