Tag: spain

Austerity is not going well for Europe or the US.

U.S. Stocks Post Longest Slump in 1 Month on Europe Woes

by Rita Nazareth and Julia Leite

U.S. stocks fell, giving benchmark indexes the longest slump in more than a month, after a jump in Spanish bond yields above 7 percent intensified concern about Europe’s crisis and as investors awaited Alcoa (AA) Inc.’s results.

The Standard & Poor’s 500 Index slid 0.2 percent to 1,352.45 at 4 p.m. New York time, according to preliminary closing data, paring an earlier loss of as much as 0.6 percent. The benchmark index dropped 1.6 percent over three days.  [..]

Stocks joined a global slump as the yield on Spain’s 10- year bond rose above the threshold that prompted bailouts in Greece, Ireland and Portugal. German Finance Minister Wolfgang Schaeuble dismissed a rapid move toward direct bank recapitalization by the European rescue fund, limiting the tools for shoring up Spanish banks as the euro-area crisis simmers.

Stocks Retreat as Spanish 10-Year Bond Yield Exceeds 7%

By Stephen Kirkland and Rita Nazareth

U.S. stocks fell for a third day as Spain’s 10-year debt yield topped 7 percent, fueling concern the debt crisis is worsening, and investors awaited the start of the earnings season. Corn and soybeans surged on forecasts for more dry U.S. weather. Treasuries rose.

The Standard & Poor’s 500 Index slipped 0.2 percent at 4 p.m. in New York and the Stoxx Europe 600 Index fell 0.4 percent. Ten-year Spanish yields jumped 11 basis points to 7.06 percent after rising as high as 7.108 percent. The euro climbed 0.2 percent to $1.2319, rebounding from a two-year low of $1.2251. Corn rose as much as 5.8 percent and soybeans jumped to a four-year high. Oil added 1.8 percent to $85.99 a barrel and natural gas rallied as a strike threatened supplies from Norway.

E.U. Seeks to Dispel Doubts About Bank Bailouts

by Paul Geitner and Stephen Casstle

BRUSSELS – With borrowing costs for Spain and Italy climbing again to critical levels, European officials sought Monday to dispel doubts about a deal struck last month to break the “vicious circle” between shaky banks and weak governments.

Spain, suffering through its second recession in three years, was also expected to win more time to rein in its budget deficit even as euro zone finance ministers haggled in Brussels over terms of a bailout for its troubled banks.

Amid the unrelenting market pressure, the European Central Bank reaffirmed that it stood ready to do more to stem the crisis – within the limits of its mandate – while urging euro zone governments to press ahead with closer integration.

Even here in the US, the Federal Reserve admits that they may be reaching there limits on their ability to fix unemployment and are at odds as to what to do next.

Fed’s Lacker Says U.S. May Be Close to Maximum Employment

By Kathleen Hays and Jeff Kearns

Federal Reserve Bank of Richmond President Jeffrey Lacker said the U.S. may already be close to maximum employment from a monetary policy standpoint and that policy makers can’t do much more to cut the jobless rate.

“Given what’s happened to this economy, I think we’re pretty close to maximum employment right now,” Lacker said today in a Bloomberg radio interview on “The Hays Advantage” with Kathleen Hays and Vonnie Quinn. “That might be shocking. That might be surprising.”

Fed policy makers believe the U.S. central bank has limited control over the jobless rate because the employment level is driven by “non-monetary factors that affect the structure and dynamics of the labor market,” according to the January statement from the Federal Open Market Committee. The jobless rate was unchanged at 8.2 percent in June.

Lacker, who has dissented from all four FOMC decisions this year, is at odds with colleagues on what the Fed should do to boost the economy. He said in a June 22 statement that he opposed the FOMC’s $267 billion extension of its Operation Twist program because it may spur inflation and won’t give the economy a significant boost.

San Francisco Fed President John Williams said today the U.S. central bank must maintain “extraordinary vigilance” to see if the slowing economy requires additional monetary stimulus. “If further action is called for, the most effective tool would be additional purchases of longer-maturity securities, including agency mortgage-backed securities,” Williams said in a speech in Coeur D’Alene, Idaho.

While all the PTB debate how to save banks and the markets, the 99% are getting poorer putting an even bigger drag on the economy. For most the recession never ended.

The heads of state of the EuroZone countries met in Brussels today for a two day summit to  try to come to an agreement on how to bail out two of its biggest members, Italy and Spain:

The 27 government chiefs will discuss buying Spanish and Italian government bonds to bring down borrowing costs that are near euro-era records, Finnish Prime Minister Jyrki Katainen said. He also proposed that bailout funds buy collateralized government debt in primary markets.

“I’ve come for very rapid solutions to support countries in difficulty on the markets,” French President Francois Hollande told reporters as he arrived in Brussels. Without specifying Spain or Italy, he said they “have made considerable efforts to deal with their public accounts.”

Leaders will consider short-term measures to stem the sovereign debt turmoil as EU President Herman Van Rompuy’s road map to strengthen the bloc’s common currency and financial oversight ran into immediate opposition from Germany. German Chancellor Angela Merkel has become increasingly isolated as Hollande, Italian Prime Minister Mario Monti and Spanish Premier Mariano Rajoy unite to push for quicker action to ease the crisis that emerged in Greece in late 2009.

Apparently all did not go German Chancellor Merkel’s way as she canceled her scheduled evening press conference. Or maybe she was watching her country’s football team get trounced by the Italians.

Euro 2012 Live Blogging: Italy 2 Germany 0

The Greeks choice of staying with the pain of austerity measures may have helped divert a crisis for the Euro Zone, but not for long. There is still Spain.

Spain bailout fears mount

Fears of a full-scale bailout for Spain have mounted as its borrowing costs spiked to danger levels on concern over the nation’s stricken banks and fast-rising debt. [..]

Tapping the markets for the first time since the Greek vote on Sunday, Spain raised 3.04 billion euros, beating its 2.0-3.0 billion euro target in an auction of 12- and 18-month notes.

But it had to pay exorbitant rates to lure investors – 5.074 per cent for 12-month debt and 5.107 per cent for 18-month debt.

The yield on Spanish benchmark 10-year government bonds shattered the 7.0 per cent barrier on Monday for the first time since the creation of the euro in 1999, pushing above 7.2 per cent.

On Tuesday, the yield on 10-year bonds was at 7.003 per cent. [..]

Spanish borrowing costs at ominous levels

Spain, on the edge of losing debt-market access, paid around 200 basis points more in interest rates Tuesday than a month ago to lure investors to its Treasury bill sale, an ominous sign ahead of a critical government bond auction Thursday.

The latest surge in the country’s borrowing costs comes a day after fresh central-bank data showed Spanish lenders were sitting on the highest level of bad loans in 18 years, raising fresh worries over the battered sector’s capital needs.

The Fat Lady isn’t singing yet.

Just an interesting aside about interest rates, David Dayen points out this exchange from today’s House hearings with none other than the Obama administration’s favorite banker, Jaime Dimon:

But the two stars of the show thus far were Democratic Reps. Gary Ackerman and Brad Sherman. Ackerman asked point-blank if there’s any difference between gambling and investing. Dimon replied that with gambling, the house usually won, to which Ackerman quipped “That has been my experience in investing.” But he got at the central point, that hedging, which entails making a bet that would counteract any other actions in the markets, really bears reveals no difference from gambling. He emphasized that “with hedging, if you’re right, only you win, and if you’re wrong, we all lose.” Precisely. There’s no productive business being done with hedging.

Dimon replied to this by saying that they do a lot of other productive business with the rest of their $2 trillion in assets, so the gentleman from New York should kindly shut his mouth (that’s a paraphrase). And Brad Sherman followed up on that very well. He first said that hundreds if not thousands of small businesses need loans, and instead of accommodating them, “you took $350 billion to London.” Sherman added that JPMorgan holds a $14 billion subsidy through their implicit Too Big to Fail guarantee. This elicited an amusing moment, as Dimon said “We borrow in the marketplace, with the smartest people in the world, with 200 basis points over Treasury.” Sherman replied that “after you lost so much money in London, I would be surprised if people lent you money for less than that.”

Well.

European officials are weighing up a bailout programme for Spain that would aid its fragile domestic banking sector while imposing only “very limited conditionality” on Madrid, a concession that could make a reluctant Spanish government more willing to accept international assistance.

Unlike earlier bailouts for Greece, Portugal and Ireland, the proposed Spanish rescue would require few austerity measures beyond reforms already agreed with the EU and could even dispense with the close monitoring by international lenders that has proved contentious in Athens and Dublin, according to people familiar with the plans.

EU support would instead be contingent on increased external oversight and accelerated restructuring of the Spanish financial sector to address lingering concerns about political interference and cronyism in the cajas, the regional savings banks that loaded up on questionable real estate loans during the housing bubble.

Mario Draghi, president of the European Central Bank, added to the pressure building on EU and Spanish officials on Wednesday, after he left interest rates unchanged and put the onus to solve the eurozone debt crisis squarely on the continent’s politicians. While saying the ECB stood “ready to act”, Mr Draghi insisted that most of the problems befalling the eurozone have “nothing to do with monetary policy”.

The question has seemingly become one of when, and not if, Spain’s banks will receive assistance from European countries, with investors on Wednesday predicting an imminent rescue and pushing up stocks and bonds on both sides of the Atlantic.

Spain, the euro zone’s fourth-largest economy, is too big to fail and possibly too big to steamroll, changing the balance of power in negotiations over a bailout. Political leaders in Madrid are insisting that emergency aid to their banks avoid the stigma in capital markets that has hobbled countries like Greece, Portugal and Ireland after accepting tough rescue terms. They are also fighting to slow the pace of austerity and economic change that have pushed those smaller countries into deeper recessions.

Spain has the added advantage of seeking help in a changed political environment in which calls for growth have begun to outweigh German insistence on austerity. Unlike Greece, Spain’s government did not run large budget deficits before the crisis, giving it leverage to argue that European aid to its banks should not come weighed down with a politically delicate loss of decision-making power over its own economic and fiscal policies.

Yves Smith take on what to do about the teetering European Banks:

Although markets reacted as if a deal was imminent, the FT makes it sound as if quite a few details need to be ironed out. And no wonder: the ECB, the one institution that could act unilaterally, has indicated it will only play a limited role and is leery of making long-term loans to Spanish banks or buying their debt. In addition, Spain appears to be taking an unwise posture, of asking for as little money for its banks as it thinks it will need. Rumors from Spanish officials come in at €40 billion, while European officials are looking at numbers more than twice that large. The big rule of fundraising is always raise a good bit more than you think you need in the first round; it will be vastly more expensive if you need to come to the well later.

Given that the shape of a Spanish bank rescue is very much in play, posts by European experts may well influence the outcome. While some of these recommendations might sound like the banking versions of apple pie and motherhood, it’s important to recognize that few of these basic principles have been adopted in recent bailout programs.

US stocks continue to dip and oil fell to below the $100 mark as the Europeans are balking at austerity only budgets that have exacerbated the recession. Nobel prize winning economist, Nuriel  Roubini weighed in on the crisis in Spain and Greece.

“Greece is going to be the first country that’s going to restructure and exit,” he said. “Others will leave also.”

“By the end of the year Spain is going to lose market access,” Roubini said in a subsequent CNBC interview. “They’re going to require a bailout. That will keep them out of the markets for a year or two. That’s not going to work out – then maybe two years down the line then you have a restructuring of the debt…And eventually even Spain could exit the euro zone-but it’s not something that’s going to happen in 12 months.”

Roubini also predicted that Spain economic situation was similar to Greece and Portugal and would require a bail out but with caveats:

And yet despite the clear signs of failure in the existing bailout countries, the EU looks set to pursue an unchanged plan in Spain. But the crucial difference between Spain and the bailout countries is size. If things go wrong in Greece, Portugal and Ireland, a second bailout is affordable. But there can only be one roll of the dice for a country as large as Spain.

A bailout package would buy some time for Spain, but time will only help if it is used to generate economic growth. By making private claims on the sovereign junior to the claims of the troika (European Commission, European Central Bank and International Monetary Fund) even a bailout risks reducing the chances of it regaining market access. Moreover, with economic indicators showing Spain sinking further into recession, a turnround in the country’s economic performance would require a significant shift in policy: monetary easing by the ECB, a weaker euro, fiscal stimulus in the core, less front-loaded austerity in the periphery, more international firewalls and debt mutualisation.

It’s very strange that governments knowing that austerity is just deepening the recession in Europe, they continue down the same path.

UK GDP fell faster than previously estimated in fourth quarter, ONS says

• UK GDP fell 0.3% rather than 0.2% in fourth quarter

• Economists had expected no change

• Disposable incomes fall 1.2% – worst since 1977

Britain’s economy was even weaker than expected at the end of last year, underlining the country’s struggle to avoid another recession. [..]

The signs from business surveys and much of the official data so far for this first quarter have been taken as evidence of at least a small new-year bounce-back. But there are widespread doubts over whether that can be sustained. Economists cite many headwinds facing the UK economy, including high oil prices, a government austerity drive and the sovereign debt crisis in the eurozone. [..]

Government spending, exports and household consumption grew, but economists warned that pattern had little chance of holding up.

“The government purse strings are being tightened, growth is deteriorating in key export markets, with the eurozone now likely to be in another recession, and revised retail sales data have signalled a far weaker start to the year than previously thought, raising concerns that households are continuing to retrench amid worries about the economy, jobs and rising prices,” said Chris Williamson, chief economist at Markit.

So what did the Cameron government do? If you guessed double down on austerity, you’re right. Jonathan Portes analogy with Shakespeare’s Macbeth is quite apt:

I described this as the “Macbeth argument”, from the following quote:

   “I am in blood stepped in so far that should I wade no more, Returning were as tedious as go o’er.”   [Act III, scene iv.]

In other words, since Macbeth has already killed Duncan and Banquo, it is better to carry on (and order the deaths of Macduff and his family) than to stop. So, although misguided policy has led to unnecessary economic damage, that damage is (returning to economist speak) a sunk cost; and the pain ahead is less then the pain that we would suffer if we changed course, as a consequence of the possible negative financial market reaction.

The Treasury also appears to subscribe to a variant of this argument.  When the original fiscal consolidation plan was welcomed by the rating agencies, that was a vote of confidence:  

   “Standard & Poor’s, the ratings agency, revised its outlook on Britain from negative to stable..The Chancellor said: “”That is .. a vote of confidence in the Coalition Government’s economic policies..”  Telegraph, 26 October 2010

But when the same rating agencies realised the damage the plan was doing to growth, that made it even more necessary:

   “Fitch revised the outlook on the UK’s rating to negative from stable….”A week from the Budget this is a reminder of why it is essential Britain sticks to its plans to deal with its debts,” a Treasury spokesman said…”  Telegraph, 14 March 2012

Spain has already fallen into another recession, sucked in by the black hole of austerity:

Spain’s economy is suffering its second recession since 2009, the Bank of Spain said, a development that obstructs the government’s efforts to reorder public finances as it prepares the budget for this year.

“The most recent information for the start of 2012 confirms the prolongation of the contraction in output,” the Madrid-based central bank said in its monthly bulletin today.

Spain’s gross domestic product declined 0.3 percent in the fourth quarter of last year, less than two years after emerging from the last recession. Prime Minister Mariano Rajoy will present his 2012 budget on March 30, amid growing pressure from investors and European peers to rein in the deficit, which was 8.5 percent of GDP last year.

The spending plan, his first since coming to power in December, won’t increase tax on consumption nor cut civil servants’ salaries, Rajoy said today in Seoul. The previous administration slashed wages of public workers by an average 5 percent in 2010.

Rajoy, who leads the pro-business People’s Party, hasn’t said where he will cut spending, even as he pledged today to present a budget that is “very austere.”

And just as with Britain and Greece, the same causes are exacerbating the Spanish problem, from Delusional Economics at naked capitalism:

Back in November last year I posted on my confusion over the jubilation shown by the citizens of Spain as they elected Mariano Rajoy as their new political leader. Mr Rajoy’s strategy during the election campaign was to say very little about what he was actually intending to do to address his country’s financial problems, preferring to simply let the incumbent party fall on its own sword so that he could take the reins. It became obvious soon after the election that, despite his party’s best efforts to dodge questions, the intention was simply to continue with even more austerity.

Since that post I have continually warned that although Spain is obviously a different country to Greece in regards to how its problems have manifested, it still faces significant macroeconomic challenges that were not being correctly reflected in the bond market. [..]

And in the United States, conservative state governments continue with their austerity agenda that continues to be a drag on the economy:

Republicans seized control of both branches of the legislature in 11 states after the 2010 elections. It’s in these very states that public sector layoffs are disproportionately concentrated, leading to one of the biggest rounds of job losses for the public workforce since record keeping began. Governors and state legislators promised to focus on creating jobs and balancing budgets during campaign season-even newly elected Pennsylvania Governor Tom Corbett still claims that creating jobs is one of his “top priorities.” Instead, these newly Republican states are targeting public workers, causing a significant drop in employment in the public sector that has threatened the entire economy. [..]

Economists argue over how significantly public sector layoffs in a weak economy hurt the recovery, but many agree that it has a substantial impact. Paul Krugman has estimated that if the government workforce had grown at a Reagan-era rate instead of decreasing rapidly, unemployment would now be closer to 7 percent, instead of the 8.5 percent it’s been hovering around for the past five months.

Growth in  public employment would have three positive effects on the economy:

1. It would increase spending in the private sector, thus improving the GDP;

2. It would increase tax revenues to not just the federal government with increased collection of payroll tax, but also increase the tax revenues of both state and local governments.

3. Increased spending by would have a positive effect on employment in the private sector with a need for workers to meet the demand for goods and services.

Don’t try to tell this to economic conservatives because there is more blood to be spilled. No matter how much they wash, the stain of recession remains in the hands of conservative governments in Europe and the US.

The deadly deadly out break of food poisoning in Germany has supposedly been traced to its source, bean sprouts that were grown at an organic farm in Germany. Over 3000 people have been sickened, many of them seriously, and 31 one deaths have been attributed to this contamination. According to the article in the NYT, even though there has been no harmful bacteria found in the sprouts, Reinhard Burger, the head of the country’s disease control agency said:

investigations centering on interviews with patients and even the chefs at restaurants where they had eaten showed that people who had consumed bean sprouts were nine times more likely to become infected than those who had not.

Even though Germany has lifted the advisory about eating fresh produce and sealed off the organic farm that was the source of the sprouts, the damage has been done with consumers all over Europe still not buying fresh tomatoes, cucumbers and other frsh produce from Spain. Meanwhile, Spain has refused to accept the compensation that was offered for the losses to farmers as too little. From the Guardian:

The European commission on Tuesday promised to pay more than €150m (£134m) to farmers hit by the E coli crisis, following robust lobbying by Spain and France.

The agriculture commissioner, Dacian Ciolos, proposed sharing out to farmers affected by falling sales amid the public health panic the sum of €150m, equating to payments worth about 30% of the average market price for the unsold crops.

But at the meeting of agriculture ministers in Luxembourg, representatives from several member states demanded more help.

Spain immediately warned the €150m would not be enough. Spain has suffered disproportionately from the economic impact of the outbreak, in part because it grows a significant share of Europe’s salad produce but also because blame for the bacteria outbreak at first was attributed to its cucumber crop.

The German health ministry was too quick to make a conclusion and should have been more diligent in their investigation.

How painful.  After Sunday’s final final final of the world cup finals in South Africa, life will probably return to normal on the planet.  After a month of almost daily futbol bliss, the workaday world returns: work (not between games), family, relationship, maintenance, vacations, etc etc.  Coming Monday looks to be particularly bleak.  There’s no futbol on the horizon, virtual or live, until the Fall of 2010, when to my utter relief European and South American futbol will resume.  Until then, there’s only off season trade rumors, contracts, transfers, the business of futbol meeting the twin engines of hype and business.

But put aside all of my drama, my foreboding.  This weekend has two televised gems for your delectation.  And this essay also has a poll.