Spanish public debt reaches 77.4% of GDP

By LUIS MIRANDA | THE REAL AGENDA | DECEMBER 14, 2012

Government debt in Spain grew another 1.55% in the third quarter with respect to the second quarter to reach 817.164 million euros, or the equivalent to 77.4% of GDP. This is the highest level ever since the cork popped out of the crisis bottle in 2008.

According to data released by the Bank of Spain, the rise is a result of the increased debt of the central government, which has added 2.24% more to the total reached before this quarter, 695.519 million euros, and that represented 65.9% of the gross domestic product (GDP).

Meanwhile, state government debt declined by 0.48% to 167,460 million euros, or the equivalent to 15.9% of GDP, while the debt of municipalities fell 2.65%, to 43.802 million euros, which is equal to 4.1% of GDP.

Along with the release of data for the third quarter, the Bank of Spain has also updated the second to include the impact of the debt payment plan to Spanish lenders, although the changes do not affect the total amount.

Thus, at the end of the second quarter sovereign debt had grown by 14.9%, placing the burden of debt on GDP at 15.9%, the highest in history and two points over the previous quarter.

Additionally, local businesses increased their debt by 22% in the second quarter, raising the ceiling to 4.3% of its debt to GDP margin, a level that had not been seen before. When it comes to autonomous communities, Catalonia is the most indebted in absolute terms, with 45.754 million euros of debt at the end of the third quarter, followed by Valencia with 25,574,000 million and Andalusia with 18,495,000 million.

In relative terms, Castilla-La Mancha ranks first as an indebted community, with a debt equivalent to 5.7% of GDP, and is followed by Valencia (25%), Catalonia (23%) and Baleares (20.3 %). At the end of the third quarter, public companies owed 55.973 million euros or 5.3% of GDP, which means 0.81% more than in the previous quarter.

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Spain’s Economy Slows Further and Runs out of Options, says Central Bank

REUTERS | JULY 24, 2012

Spain’s economy sank deeper into recession in the second quarter, its central bank said on Monday, as investors spooked by a funding crisis in its regions pushed the country ever closer to a full bailout.

Economic output shrank by 0.4 percent in the three months from April to June having slumped by 0.3 percent in the first quarter, the Bank of Spain said in its monthly report.

Economy Minister Luis de Guindos ruled out a full-scale financial rescue on top of the 100 billion euros already earmarked for the country’s banks, but Spain’s sovereign bond yields stayed mired in the danger zone.

In contrast to de Guindos, who told lawmakers there was little else Spain could do to ease the tensions after launching a 65-billion-euro austerity package last week, the central bank’s deputy governor said more belt-tightening was needed.

“(Current market tensions) reflect problems in Spain as well as the euro zone,” Fernando Restoy said after a conference in Madrid.

“We need to continue further along the same line. We need more cuts, more reforms which will restore market confidence and mechanisms which will strengthen the monetary union.”

Earlier, media reports suggested half a dozen regional authorities were ready to follow Valencia in seeking financial support from Madrid.

Prohibitively high refinancing costs have virtually shut all of the 17 regional governments out of international debt markets, forcing the worst hit to seek loans from the central government to meet bond redemptions.

Spain’s sovereign debt yields rose above 7.5 percent on 10-year paper on Monday, well above the 7 percent level that triggered the spiral in borrowing costs that led to bailouts for other euro zone states.

GERMANY STIRS

In a sign of a growing awareness among the euro zone’s heavy hitters of the need to protect Spain, Economy Minister De Guindos will travel to Berlin on Tuesday to meet with his German counterpart Wolfgang Schaeuble.

“We believe that the reforms already begun by Spain will help calm the markets,” Schaeuble’s spokeswoman Marianne Kothe said in Berlin, adding that the regions’ funding problems had “nothing to do with” the European rescue deal for the country’s banks.

Germany knew of no plans for a broader Spanish bailout request, she said.

Asked about that option on the sidelines of a parliamentary hearing on the bank aid, De Guindos said: “Absolutely not.”

The mounting unease was reflected in financial markets.

Spanish two-year bond yields were up almost 90 basis points at 6.64 percent and the cost of insuring Spanish debt against default rose to a record high.

With the blue-chip stock market index Ibex hitting its lowest level since 2003, Spain reintroduced a temporary ban on short selling on Monday to discourage speculative trading.

But the ban, matching a restriction imposed on Monday in Italy, stoked fears that Spain’s sovereign debt and banking crisis may be more widespread than expected, sending European shares to new intraday lows. They later recovered in Spain and Madrid stock market fell 1.1 percent on the day.

Spain slipped into recession for the second time since 2009 in the first quarter of this year, its economy crippled by a bank sector weighed down by soured assets from a collapsed property bubble and unemployment rates that have risen close to 25 percent.

The government said on Friday it expected the economy to continue to shrink well into next year, fuelling market and massive protests.

For the 12th day running, government employees demonstrated against the cuts programme in the main cities of the country on Monday, blocking roads and stopping traffic.

TIME FOR THE ECB?

In his comments to parliament, de Guindos hinted the European Central Bank – hitherto unwilling to relaunch stalled stimulus programmes that might offer relief to Spain and other states at the sharp end of the euro zone debt crisis – should now step in.

Asked whether ECB intervention was needed, De Guindos said: “I repeat that in this situation of uncertainty and excessive volatility… the only way to act goes well beyond the capacity of governments.”

There was however little sign that the Frankfurt-based institution would move any time soon and Ireland’s Prime Minister Enda Kenny warned the Spanish situation was getting very serious.

“They’re effectively locked out of the long term markets. Obviously it’s an economy with huge figures and from that point of view it’s one of a number of countries now which face very challenging positions,” Kenny told national broadcaster RTE.

Meanwhile, Spain’s central bank said an accelerated programme of structural reforms could offset the impact of the deep austerity programme, aimed at shrinking one of the highest public deficits in the euro zone.

It called for great sector liberalisation to improve competitiveness, the reduction of administrative red tape and the improvement of transparency in good and services markets.

“This should offset the negative short-term effect of the higher fiscal restrictions and, above all, will determine the economy’s medium- and long-term growth potential and productivity,” the bank said in its monthly bulletin.

Spain readies ‘nationalization’ of Cajas

The Spanish government is preparing a plan to outsource the control of the people’s banks by demanding larger reserves in a short period of time.  The result?  Banks will probably not make it and the government will ask foreign investors to take control of the Cajas.

AFP
March 6, 2011

Spain’s ailing regional savings banks are scrambling to raise billions of euros of fresh funds to meet strict new capital requirements by a Thursday deadline.

The country’s 17 savings banks, known as “cajas,” are weighed down by loans that turned sour after the collapse of a housing bubble in 2008 and are at the heart of fears the country could need an Irish-style international rescue.

Last month the government approved stricter rules on the amount of rock-solid core capital that banks must hold on their balance sheets, seeking to shore up confidence in the battered economy.

Under the new rules, savings banks must raise the proportion of core capital they hold to 8.0 percent of total assets from the current six percent, or 10.0 percent if they are unlisted.

The Bank of Spain will determine Thursday which savings banks have met the new core capital requirements and in the case of those that have fallen short, how much capital they need to raise to meet the new requirements.

Up to 11 of Spain’s 17 regional savings banks will need additional capital to reach the levels of solvency set by the government, the ratings agency Standard & Poor’s said last month.

The government estimates that all the savings banks will need to raise 20 billion euros to meet the new requirements, a figure many analysts describe as too low.

The state is threatening to take temporary stakes — a form of nationalisation — in those lenders that fail to abide by the new rules by September.

Credit rating agency Moody’s put a 50-billion-euro price tag Monday on the recapitalising of Spanish banks hit by the property market collapse.

“The government is trying to attract foreign investors for the cajas, so it is logical that it attempt to downplay the amount to make it more attractive,” said Gonzalo Gomez Bengoechea, a researcher at Madrid’s IESE Business School.

The government is encouraging the savings banks to recapitalize using private funds which gives them several options:

– selling assets;

– opening their capital to investors;

– listing on the bourse, which would require they become fully fledged banks.

Under pressure from the government, many of the savings banks merged last year, reducing their numbers from 45 to 17, to improve their efficiency.

Ten of these new savings bank groups have decided to transform themselves into banks, or are thinking of doing so, and of these five plan to list on the stock market.

Foreign investment funds — about a dozen according to Spanish media reports — as well as Spanish banks have shown interest in investing in the cajas.

BBVA, Spain’s second largest bank, has said it wants to “take advantage of opportunities” and “enter the game”.

Two regional Spanish savings bank groups, Caja Duero-Espana and Banco Mare Nostrum, are mulling a merger, Spanish media reported last week.

“Every move that can strengthen our project is welcome,” the spokesman for Caixa Penedes, one of the four banks that make up Banco Mare Nostrum, Alberto Puig, said when asked about the reports.

“Among the cajas, everyone is talking to everyone,” he added.

Another four savings bank groups have sold assets to raise their capital.

The Bank of Spain will allow cajas on a case-by-case basis until December to close stake sales to private investors and will give them until March 2012 to hold intial public offerings.

In Socialist Spain, CajaSur is Seized, Nationalized

In the meantime, the IMF is urging Spain to do more to slow down the crisis.  Dominic Strauss Kahn says Spain has an irregular job market, a housing bubble that is about to explode, a huge fiscal deficit, a weak banking system which is not competitive and a growing debt with foreigners.  Although Strauss Kahn called Zapatero’s efforts important, he also said such changes are not enough.

Market Watch

Based in the southern city of Cordoba, CajaSur has $16.36 billion of loans outstanding and holds $23.9 billion, or 0.6%, of the assets within Spain’s financial system, the reports say.

CajaSur on Friday determined not to go ahead with a plan reached in August to merge with a bigger lender, Unicaja of Malaga. The failure of that plan prompted the authorities to take over CajaSur, reports say.

For 2009, CajaSur posted a net loss of 596 million euros ($750 million). Bank of Spain officials estimate that restoring the bank to solvency will require about 500 million euros of fresh capital, reports say.

CajaSur, which had been controlled by the Roman Catholic Church, was the second Spanish bank failure in a bit more than a year, reports say. In March 2009, the Spanish central bank seized control of Caja Castilla-La Mancha.

The seizure of CajaSur comes against the background of international concern about Spain’s creditworthiness. This month, the European Union put in place a financial backstop against the prospect that Spain and other countries could default on their debt.