The Spanish bank bailout begins to look a little tarnished under the stark light of the Mediterranean sun, which is also scorching Italy, having already incinerated Greece.
The press for state sovereignty surrender to Brussels has reached a boil, with the IMF boss and successor to alleged organized crime figure Dominique Strauss-Kahn has given Europe a deadline: Get your shit together in three months — or else.
We’ve got Merkle merkling and another downgrade for more Spanish banks, Troika enforcers assigned to monitor the Spanish bailout, increased likelihood of a Cypriot bailout, and threats to the European health system.
Throughout it all a the media dialogue focuses on the latest symptoms of the crisis, framing them in the terms set by the neoliberal agenda: Austerity is needed, enforced by an increasing powerful and authoritarian center, dominated by those with the most to gain from looting the ruined lives of millions.
But the mandate is growth, to feed the insatiable beast that is debt — all to keep the game going long enough to gather up all the spoils.
Market gives thumbs down to Spailout
By Tuesday, the weekend’s Spanish bank saving bailout [i.e., making the Spanish people liable for the losses of housing-bubble-inflating banksters] was beginning to look like a bust.
From Agence France-Presse:
Spanish borrowing costs have soared to a euro-era record high on a market beset by doubts over a vast rescue loan for the country’s banks and by fears of a Greek exit from the eurozone.
The euro came under more pressure in early trading Wednesday, unconvinced by the deal struck by the 17 eurozone nations over the weekend to extend Spain a banking sector rescue loan of up 100 billion euros ($125 billion).
Two major concerns stood out: doubts over Spain’s outlook even with the eurozone rescue, and Greek elections on Sunday, which in a worst-case scenario could send Athens back to using the drachma.
Adding to Spanish agony, Fitch Ratings on Tuesday downgraded 18 more Spanish banks a day after cutting its ratings on the two biggest banks, Santander and BBVA, despite the massive sector bailout.
More from Spiegel:
After widespread investor optimism on Monday in the wake of the weekend news that Spain would receive up to €100 billion ($125 billion) in emergency aid for its wobbling banks, Tuesday has brought a return to realism. Black stock-exchange numbers have once again nudged back into the red and worries about the survival of the euro zone have returned despite the Spanish bailout.
The apparent skittishness isn’t surprising. Greek voters go to the polls on Sunday in an election that many believe could determine whether the country remains in the euro zone or is forced out. Potentially more ominously, numbers released on Monday indicate that the Italian economy is in disastrous shape, having shrunk in the first quarter faster than it has in three years. It is the third quarter in a row that the Italian economy, the euro zone’s third largest, has contracted. Many believe that it is merely a question of time before Italy also has to apply for emergency aid from the euro backstop funds.
Meanwhile, despite official optimism from Madrid — and even from the oft-dour German Finance Minister Wolfgang Schäuble — it is doubtful that €100 billion will be enough to save Spain’s banking industry and put the euro zone back on the road to recovery. For one, recent history has shown just how quickly banks can run into significant trouble should the economic situation rapidly worsen.
The name is bonds, inflating bonds
Seems like folks who buy Spanish bonds are demanding more for their money, ensuring that the country’s debt keeps growing even as the country seeks deeper into misery.
From the BBC:
Spain and Italy’s borrowing costs rose on Tuesday as the initial optimism that greeted the Spanish bank bailout continued to evaporate.
Spain’s benchmark 10-year bond yields hit 6.65%, nearing the six-month highs seen in May. Italy’s 10-year bond yield rose to 6.19%, not seen since January.
The interest rates are seen as unsustainable in the long run for two countries weighed down by huge debts.
And the Iron Chancellor strikes again
Her monotonic message: All power to Brussels.
From Agence France-Presse
German Chancellor Angela Merkel Tuesday hailed Spain’s request for a banking bailout but stressed it would come with strings attached, as she warned Europe that halting reforms would be “disastrous”.
“There will of course be conditionality for Spain, when the application comes, namely a restructuring of its own banking system to make it fit for the future,” Merkel said, noting that it was “different from the conditionality in force when a whole country comes under the bailout fund with its entire economic programme.”
“I think it is right that Spain is now applying to recapitalise its banks, because the banking problems have not been caused by the state of the economic reforms but by a property bubble over the past decade,” she added.
Merkel said problems encountered by the European Banking Authority (EBA), which conducted Europe-wide stress tests of risky banks, showed the need for more centralised control at EU level.
Italy’s caught the Aegean-Iberian infection
First Greece, then Spain, now Italy again.
Even while other markets were up in that Monday’s brief paroxysm of optimism after the Spailout, Italy’s stocks were down in the Mediterranean’s $2 trillion economic boot.
From Liz Alderman and Elisabetta Povoledo of the New York Times:
The main fear is that Italy cannot grow its way out of a recession fast enough to pay a mountainous national debt. Other concerns include the fact that Italy, with the third-largest euro zone economy after those of Germany and France, will have to shoulder a large portion of the bailout bill even as it grapples with its own sharp economic downturn.
“There’s no doubt contagion will come to Italy,” Daniele Sottile, a managing partner at the financial advisers Vitale & Associati in Milan, said at the same conference, which was convened by the Council for the United States and Italy on an island near Venice. “It’s proof that the European mechanisms designed to stop the crisis are not working.”
Sergio Marchionne, the chief executive of both Fiat and Chrysler, was more blunt at the conference. “Somebody better do something before we get to the point of no return,” he said.
IMF: You’ve got less three months — or else
Merkel’s BFF at the IMF hammers home the message.
Christine Lagarde, head of the International Monetary Fund (IMF), has warned that the euro zone has less than three months to get its act together. In an interview broadcast on Monday evening, Lagarde told the television station CNN that action to save the euro is needed in “more shortly (sic) than three months.” She was referring to a recent prediction by billionaire investor George Soros that Europe has three months to save the euro.
“The construction of the euro zone has taken time,” Lagarde told CNN. “And it’s a work in construction at the moment.”
The IMF head declined to comment on whether Greece would leave the euro zone. “It’s going to be a question of political determination and drive,” she said. Many observers fear that Greece will have to return to the drachma if the left-wing anti-austerity Syriza party wins Sunday’s election.
Merkel keeps pushing the Tobin Tax
While we’re wholeheartedly behind the notion of taxing all those high velocity computerized trades devised by the finest minds coming out of the world’s finest science and math departments, Merkel’s using the tax as a play to get all those more-power-to-Brussels mandates.
German Chancellor Angela Merkel said yesterday (11 June) she would campaign for a financial transaction tax, addressing concerns among the centre-left opposition that her government was only using the issue as a way to get euro crisis legislation through parliament.
A British Treasury official, responding to reports of Merkel’s support a European-wide levy, said the UK government remains steadfastly opposed and would block any move by the European Union to introduce such a tax.
Speaking in Frankfurt, Merkel said: “The federal government, as agreed with the opposition, will campaign for [a financial transaction tax].” She added that Germany needed both functioning banks and justice in the financial sector.
A media report at the weekend that Merkel is not serious about implementing a European financial transaction tax has angered opposition parties and threatens to undermine an initial deal struck last week with the opposition over the EU’s planned fiscal pact.
Lagarde’s minions book a Spanish passage
The International Monetary Fund is sending a crew to whip the Spaniards into line.
The word comes from the EU’s competition commissioner, as the Troika tightens its grip on the country with crews on the ground making sure the austerian discipline is maintained.
From Agence France-Presse:
The International Monetary Fund will help European officials monitor Spain’s multi-billion euro banking bailout, European Union Competition Commissioner Joaquin Almunia said Monday.
Experts from the Washington-based body will join officials from the European Central Bank and the European Union in overseeing the application of the loan promised Spanish banks at the weekend, he told radio Cadena Ser.
“The IMF will not finance or co-finance (the loan). But it will be associated with the task of monitoring everything that is going to happen from now. And it will also be in the troika,” he said.
“I hope that they will do their job well, honestly, and that they do not believe that they are in a banana republic. They are coming here to check that the money of European and Spanish citizens is well used.”
More from another Agence France-Presse story:
Germany’s finance minister on Monday stressed that billions of euros in aid to Spanish banks requested by Madrid would be overseen by European officials and the International Monetary Fund.
Asked whether Spain would avoid monitoring in the bailout, unlike previous deals with Portugal, Ireland and Greece, Wolfgang Schaeuble said: “No, there will be a troika in exactly the same way, that will of course monitor that the programme is being kept to.”
“But this is only about a restructuring of the banking sector. That is the difference,” added Schaeuble in an interview with German radio.
“While Portugal, Ireland and Greece are under macroeconomic adjustment programmes, it is important they are monitored … Spain does not need that,” he said.
More on those latest Spanish bank downgrades
From Press TV:
Fitch credit ratings agency has downgraded Spain’s two largest international banks Banco Santander and Banco Bilbao Vizcaya Argentaria (BBVA) from A to triple B plus.
The international credit agency said on Monday that the downgrades were primarily because Spanish sovereign debt ratings had been downgraded to BBB- from A- on June 7 and also due to forecasts that Spain’s faltering economy would remain in recession throughout this year and also in 2013.
The downgrades “reflect similar concerns to those that have affected the Spanish sovereign rating, in particular, that Spain is forecasted to remain in recession through the remainder of this year and 2013 compared to the previous expectation that the economy would benefit from a mild recovery,” Fitch said in a statement.
The move comes just two days after eurozone finance ministers agreed to help Spain’s troubled banking sector with a 100 billion euros loan.
Italians spend less as crisis deepens
With further austerity a given and the economy already on slowdown, Italians are making the rational choice to hold onto more of their euros in the face of an uncertain future.
In the first quarter of 2012 Italian household spending dropped by 2.4% compared with the first quarter of 2012 and by 1% on the previous quarter, according to the Italian national statistics institute. Italian households are trying to save money in all areas, and durable goods have seen a double-digit decline (-11.8%). The latter include cars, furnishings, and appliances.
Also dropping, however, are even non-durable goods (-2.3% in one year) and the reference point is above all that of food, though corners are also being cut on medicines, detergents, and personal care products, among other things. Over the past year Italian families have also purchases fewer services: -0.2%.
Cypriot bailout draws nearer
Must be something in that Mediterranean water. . .
“The issue is urgent. We know the recapitalisation of the [island’s] banks must be completed by June 30, and there are a few days left,” Finance Minister Vassos Shiarly told journalists.
Responding to a question on whether any potential bid for aid would be focused on support for its banks, Shiarly said in his view it would be a comprehensive package, based on existing practice.
“When one applies to the support mechanism you take into account all the facts, including needs which may arise in coming periods. Consequently it would be a comprehensive request covering not only present circumstances and the recapitalisation of the banks but also future needs,” he said.
The cash-strapped country, shut out of financial markets for a year and running deficits, will need the equivalent of 10pc of its gross domestic product just to prop up Popular, which is looking for an investor willing to fill a €1.8bn regulatory shortfall, or the government must come to its aid.
Public health poses a problem for austerians
The Greek public health system has been devastated. As we’ve been reporting, druggists and hospitals can’t afford medicines, and the critically ill have been forced to do without much-needed medicines.
Some hospitals are so poor that their staff is still working even though they haven’t been paid since December.
Finally, someone is waking up, or at least sleep-walking.
European governments should not be neglecting public health in times of austerity, the EU’s health Commissioner John Dalli has warned.
“What Europe needs now is to deliver more and better healthcare within sustainable health budgets,” he said in his keynote.
The Maltese commissioner added that “difficult times can indeed provide an incentive to think creatively and push forward in-depth reforms and contain costs, while building modern, responsive, and sustainable health systems fit for the future.”
In France, the government expects to reduce spending by €2.4 billion on the health insurance side. Some 40% of these reductions will be made through a shift to generic medications and savings on medical devices, while measures in favour of greater efficacy in hospitals are expected to lower cost by €1.5 billion.
The Czech Republic’s Ministry of Health suffered a budget cut of €81 million in 2010 – a decrease of 30% compared to 2008. The country’s budgetary cuts amounted for 15%-20% for all social sectors.
The health budget for 2011 in Greece decreased by €1.4 billion, with €568 million reduced through salary and benefit-related cuts. Hospital operating funds were cut by €840 million.