One theme of
the European financial crisis is governments going ever further into debt just in
order to get by for a little longer, with the plan seeming to be to face the
music later (riiiight), while keeping one's fingers crossed that the economy
will have somehow sorted itself out by then.
Spain is suffering from a truly
crushing housing bust that is still playing out (and which will continue to do
so for a long time). It is also
suffering from very high unemployment and a stalled economy, and has compounded
all these problems by piling up an astounding amount of new debt over the past
year: Spain regional debt is up 22% to $176
billion. Debt levels for Spain's
cash-strapped 17 semiautonomous regions have soared 22% over the past year, the
country's central bank said Friday.
A near
two-year recession after a real estate bubble collapse has left Spain with
swollen regional and national deficits, a stalled economy and 22% unemployment. In addition, many regions are facing severe
cash-flow problems and are having to delay payments to suppliers.
The European
Central Bank (ECB) has been heavily involved in buying Spanish bonds. The interest rates that Spain would otherwise have to pay on its bonds would
undoubtedly be a lot higher given the grim state of its finances. But for
how long can and will the ECB continue to buy Spanish bonds?
Portugal is still in trouble,
and the government has (quite worryingly for the precedent it sets) raided private pension funds to help balance
the books: Portugal's deficit falls were helped by a
one-off measure: Portugal's budget deficit will likely
fall to below 5% this year from 9.8% in 2010.
The problem here is that this sharp drop is largely due to the transfer to the Treasury of 6 billion euros ($7.8
billion) in private banks' pension funds! Portugal is being leaned on heavily by the
international banking community and has decided to raid the pensions of --get
this! -- four of the largest private banks in Portugal.
Portuguese
bond yields are down from their crisis highs of 20% (2-year) and 14% (10-year),
but again not enough to count, as they are sitting at 15.6% (2-year) and 13.1%
(10-year), levels that are unsustainably well above the current (and falling) rate
of GDP growth.
Our poster
child for the entire Eurozone mess is of course Greece. And quite predictably,
a trickle of bank withdrawals has turned into a flood. From The Guardian: "Greeks fearing collapse of eurozone bailout pulled record sums
from bank" (Dec. 16, 2011)
An
unprecedented exodus of capital from Greece (a record number of withdrawals
from banks in recent months) has exacerbated the liquidity crisis now wracking
the recession-plagued country. The
latest figures released by the Bank of Greece reveal that in September and October alone investors pulled 12.3 billion euros
from domestic banks, spurred by fears of political uncertainty and economic
collapse. Overall, outflows have
reached a record 25% since September 2009 -- when household and corporate
deposits stood at a peak of 237 billion euros.
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