Greece has endured a Depression-level collapse over the past few years, with employment and real national income both about 25 per cent below their pre-crisis peaks. As if that weren’t bad enough, capital controls, introduced in response to the Eurosystem’s refusal to act as a lender of last resort to Greek banks that had passed the ECB’s stress tests, have led to reports of shortages at grocery stores and gas stations.
Yet none of this was visible when we visited the country over the past few weeks, even in the large cities. The point isn’t that Greece is doing just fine — far from it. Rather, it’s an illustration of the dangers of relying on anecdotes and personal experience when evaluating an economy of many millions of people. Read more
Spoiler alert. In this guest post, former IMF staffer Peter Doyle, argues that some participants in the on-going Greek crisis might be suffering from anosmia…
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Despite doing (basically) everything right, Spain’s membership in the euro has left it at the mercy of forces far stronger than anything even the most competent and responsible national institutions can handle.
That was our main reaction to a fascinating conference hosted by the Spain-US Chamber of Commerce, and it suggests that the single currency will not be able to survive without significant changes. Read more
The number of Spaniards with a job fell by more than 18 per cent between mid-2007 and the beginning of 2014. That is a staggering sum, and it helps explain why Podemos, the anti-establishment party, is expected to win a large share of the vote in Spain’s elections later this year.
The literalist explanation is that Spain’s real GDP fell about 6 per cent lower at the same time as Spanish labour productivity rose around 12 per cent. You could blame the euro crisis, the overhang of private debt, fiscal austerity, an undercapitalised banking system, and the strictures of the single currency for the former, and perhaps attribute the latter to the Spanish government’s reform programmes.
While we don’t want to dismiss the importance of policy errors and unsuitable exchange rate regimes, much of Spain’s suffering in the bust can be explained by the structure of its economy in the long boom that preceded it. On the eve of the downturn, Spain had the misfortune of looking like a Mediterranean hybrid of Nevada and Michigan. Compared to those US states, which ostensibly benefit from their membership in a functional monetary union, Spain has actually done quite well. Read more
Take a good long look at this map:
Handy chart from CreditSights illustrating the changing fortunes of euro area households over the past couple of years:
The disclosure of “material” information tends to generate a bit of discussion in corporate and financial circles, unless of course we’re talking Spanish banks.
Note this announcement from Santander on Tuesday: Read more
We all know about the amazing diminishing Spanish bond yield.
But have you heard the one about the Spanish recovery having totally viable legs?
Spanish consumer prices may have fallen 0.5 per cent in August, year on year — their sharpest drop since 2009 — but the final reading of second quarter GDP confirmed the economy still grew 0.6 per cent q/q versus 0.4 per cent q/q in first quarter of 2014.
As this chart from Marco Protopapa at JP Morgan shows, that makes for quite a turnaround, deflation or no deflation:
On Tuesday, US short selling specialist Gotham City Research declared Spain’s Let’s Go Gowex to be a fraud. When the shares collapsed, triggering a suspension, the immediate response of regulators at Spain’s alternative stock market regulator, the Mercado Alternativo Bursatil, was to fire off angry missives to America’s SEC and the UK’s FCA. It wanted to “determine if there have been illegal operations” on the part of Gotham and its managers.
Lo and behold it looks like any illegality may just have been a little closer to home. Click to read (spanish)…
Something to keep in the back of your mind as once remote political events become everyday, is that the Catalan question still lingers.
Here’s Citi’s recent assessment of the local but in no-way endorsed by Madrid poll set for the Autumn:
Catalonian independence (due in November 2014).
Glimmers of hope in Spain, which has adjusted its economy (cut labour costs) and is peering around the corner of recovery. Credit Suisse has sufficient confidence to upgrade its views on some of the banks.
They would now buy Caixabank and Popular, while Sabadell gets a reprieve from the sell list.
We see Spanish banks approaching a ‘turnaround’ in the earnings cycle after material progress in terms of funding, capital and Non Performing Asset recognition, and with superior operating leverage adding appeal to the story…
Typical — you take off as the risk on Spanish bonds fades… only to get sold off as Argentina implodes. Read more
Bankia, of course. Why a 13 month deposit is required, we’re not so sure.
Reality at last for the crumpled Spanish savings bank? Maybe. Read more
John Calverley and team at Standard Chartered have a big report out looking at how a selection of developed economies are doing post-2008. The short answer is that the US has largely recovered from the crisis, with growth there likely to be above trend in 2014. The UK and Japan, meanwhile, are still behind in terms of balance sheet adjustment and effective monetary policy, while poor Spain “still has a long way to go.” Read more
Is it only going to get worse before it gets better?
Societe Generale think so: as the chart says, they’re expecting it to reach 30 per cent in 2015 (from an already-awful and record-breaking 27.2 per cent, at last count). Read more
The chart above shows the decline in Spanish bond yields “occurring at a time that Spain has announced that it had not hit its deficit targets and would not hit next year’s,” as David Watts of CreditSights points out. Read more
Nothing like taking the long view – such as this snapshot of Spanish, Portuguese and Italian 10 year paper, over 150 years. Click to enlarge
Bond yields in the eurozone are hitting new lows not seen since 2010…
Not the full-on collision of the two which initially popped up in Cyprus.
Still, we missed this slapdown by the ECB… directed at Spanish plans for the deposit guarantee fund there to buy out retail investors from illiquid preferred shares and subordinated debt in unlisted banks, when those banks are being restructured. Read more
Mortgage markets come in many different flavours. Some American states, for example, like theirs to be non-recourse. In such locations, a homeowner can walk away from their mortgage, and send the house keys to the lender secure in the knowledge that the only asset that can be seized is the property.
Such tastes no doubt contribute to a higher proportion of non-performing loans, as mortgage-holders are quite aware of their right to walk away — an option that becomes increasingly more attractive in an economic and housing downturn.
And now it would appear that the Spanish might prefer their mortgage market to have a taste of the non-recourse mortgage in future, as a pressure group succeeded on Tuesday in getting the country’s parliament to debate an initiative for making the change. Read more
Just how bad could the Rajoy slush fund scandal get? What we have so far is a little confusing. From El Pais on Monday:
Answering reporters’ questions for the first time since details emerged late last week about an alleged slush fund his Popular Party (PP) controlled, Prime Minister Mariano Rajoy said on Monday in Berlin that all the information that has been published by the media “is untrue — except for some things.”
Hmm. Rajoy reportedly didn’t clarify which things were true and which were not — although he had already denied allegations he took cash payments from a secret slush fund paid for by construction companies. Read more
El Pais has a nifty interactive whereby you can search the 14 sheets of manuscripts allegedly penned over 18 years by Luis Gutierrez Barcenas, the party manager and treasurer at the heart of the supposed Rajoy “slush fund” scandal in Spain…
In our last post, we covered up-to-date figures on some of the major components of the headline Spanish deposits number. Here we discuss a new component that will come into play over the next few months. In fact, it might have already been a factor in November’s number.
It’s the €40bn of previously undeclared assets of Spanish residents! The finance minister announced last week that this was simply hiding in a sofa (or possibly multiple sofas), and it wasn’t all that hard to find once they went to the trouble of removing all the cushions. Or, something like that…
OK, actually it’s the amount that came to light through the government’s tax amnesty that closed on November 30th, 2012. But hey, that would have been a hell of a couch, eh? Read more
The measurement of Spanish deposits is whatever you want it to be! Or at least it sometimes seems that people regard it as such.
FT Alphaville has previously discussed how hard it is to meaningfully interpret this number. The last time we went there, to try to explain various underlying components of the figure and which direction they’re travelling, the media was aflutter with tales of deposit flight.
Now, there are stories of deposits and capital returning… and we need to add further driving factors to the headlines. What with the tax amnesty that unearthed some €40bn of previously undeclared assets of Spanish residents, as announced by the finance minister last week, and all. Read more
An unlikely beneficiary of the fiscal fudge, perhaps. Here’s Spanish 10 year paper, the yield on which was threatening to drop back below 5 per cent on Thursday. Read more
Last weekend’s Catalan elections returned perhaps the most difficult-to-read result. Judging by the overall support for separatist parties, there was significant support for at least a referendum on independence. Yet the largest separatist party, the centrist Convergència i Unió, saw its majority in the regional parliament slashed, forcing it to seek a coalition. Read more
Catalonia’s regional election on Sunday delivered a big victory for the separatist movement — but a more fragmented one than had been expected. Four separatist parties won 87 of the regional parliament’s 135 seats. The ruling CiU party didn’t do so well, losing 12 seats to hold 50. This was much lower than polls had suggested, and follows a battle between supporters and opponents of independence that has become increasingly bitter, as the allegations against Artur Mas last week illustrated.
As the FT’s Miles Johnson reports, the vote brings the prospect of a stronger push for Catalan independence. Regardless of the CiU’s own performance, the surge in support for smaller separatist parties raises the big question of what this means for heavily-indebted Catalonia, and for Spanish prime minister Mariano Rajoy. Read more
The Catalan elections are on Sunday, and perhaps unsurprisingly there’s been an escalation of tensions ahead of the vote. The question is how this might benefit the CiU, the main separatist party. Read more
A report in the Spanish paper El Confidencial says that the Spanish government is considering asking just the IMF for aid in an attempt to bypass Eurogroup conditionality.
It seems quite an unlikely option (and no sources are cited) but it may nevertheless be an indication that the government is feeling increasingly anxious about its ability to hold out on asking for a bailout. Read more