Spain got the bailout they wanted, but will it save the euro? And what about Italy?
There’s a French election today [with a runoff next Sunday], another Grexit warning, eurocontagion in Britain, the power behind Merkel’s europolitik, another political corruption scandal [in Britain], huge Facebook losses for a Swiss bank, and a massive European invasion of Chinese capital. And more.
We’ll have Greece up in a separate post.
Hollande, allies strong in parliamentary vote
While former President Nicolas Sarkozy’s UMP captured the largest share of votes, the man who beat him last month stands to command a parliamentary majority when other allied parties are added to the numbers won by François Hollande’s Socialist party.
Today’s vote was the first of two rounds, with the final composition of the 577-seat National Assembly to be decided in a runoff round next Sunday.
From the BBC:
President Francois Hollande’s Socialists and their allies are set for a majority following the first round of voting in French parliamentary elections, final results show.
Left-wing and green parties won a total of more than 46% of the vote compared to 34% for the centre-right UMP party, interior ministry figures showed.
The communist-backed Left Front, led by Jean-Luc Melenchon, won 6.9% of the vote.
The election also saw a surge in support for Marine Le Pen’s far right National Front, which won almost 14% of votes – way beyond the 4% it achieved in the last parliamentary election of 2007.
However, under France’s first-past-the-post system, that would give the party only three parliamentary seats at best and possibly none at all.
More from Radio France Internationale:
The question now is whether the Socialist Party and its Green Party allies will have an absolute majority or whether they will need to call on the support of Mélenchon who has refused so far to play a role in government.
Voter turnout was estimated at under 60 per cent which was below the figure for the previous legislative elections in 2007.
More than 6,500 candidates were competing to fill the 577 seats in the National Assembly – 40 per cent of these are woman. There are also 11 new seats to represent French voters who live abroad. The left already holds a majority in the upper house Senate, which is indirectly elected.
Voting takes place under a constituency-based simple majority system, but in two rounds. If no candidate wins more than 50 per cent in the first round, any contender with more than 12.5 per cent of the vote is allowed to stay in the race for the second round.
Spain gets a bank bailout
It went from “we don’t need it” to “help, for God’s sake, help” in just a week.
From Raphael Minder, Nicholas Kulish, and Paul Geitner of the New York Times:
Responding to increasingly urgent calls from across Europe and the United States, Spain on Saturday requested assistance for its cash-starved banks. European finance ministers in turn promised up to $125 billion in aid, which they hope will quell rising financial turmoil ahead of elections in Greece that could roil world markets.
The move came after the finance ministers from the 17 nations that use the euro convened an hours-long conference call Saturday, amid growing fears that instability in Spain could drag down an already-sputtering world economy. The escalating tension prompted President Barack Obama to push Friday, in unusually explicit terms, for quick European action.
European officials have said they wanted to go well beyond the immediate needs to shield Spain from any destabilizing effect from next weekend’s Greek parliamentary election. Spain fought to avoid the stigma of a bailout and tried to portray the Europeans’ offer as coming with few strings attached. Rather than calling for new austerity measures, the conditions of the agreement were focused instead on bank reforms, as Spain had requested.
Spanish officials on Saturday denied that their country was in the same position as Greece, Portugal and Ireland.
More from the BBC:
Mr de Guindos said there would be conditions attached for the banks receiving the loans, but there would not be “micro-economic conditions” for Spain.
“We hope that as a result of these injections [of capital] families and companies will have more solvent banks which are able to offer them credit, which they are not able to do at the moment,” he said.
The exact amount that Spain will receive will be decided after the completion of two audits of its banks, due to be completed by the end of the month.
A team comprising staff from the European Commission, the European Central Bank and the International Monetary Fund will head to Madrid to assess the needs of the Spanish banking sector, a Eurogroup spokesman confirmed to the BBC.
The money will bolster the finances of Spain’s weakest banks, which have been left with billions of euros worth of bad loans because of the collapse of the country’s property boom and the recession that followed.
And the chorus of cheers begins
One of the first huzzahs came from the East.
From Agence France-Presse:
Japanese Finance Minister Jun Azumi hailed Sunday the 100 billion euro financial lifeline for Spain, calling it a “major first step” toward stabilising the European and global economy.
He also called on European leaders to continue taking flexible actions to ease the region’s financial woes, which have threatened global economic health and sent the Japanese yen to record highs.
“The confirmation of the scheme worth 10 trillion yen (100 billion euros or $125 billion) should greatly contribute to stabilisation,” Azumi told local reporters, referring to both the global economy and Spain’s troubled banking system.
“I hope that such actions will continue to be taken flexibly with a sense of speed. In that respect, I think this is a major first step,” he said.
And, surprise, Germany joins the chorus
Given the dominant role of Germany and its Bundesbank in drafting the final script, a response from Germany’s money minister was inevitable.
Christoph Hasselbach of Deutsche Welle gets at some of the nuances — and the messaging and massaging:
Germany’s finance minister Wolfgang Schäuble pointed out in a written statement that Spain was on a good path overall and that even “the biggest Spanish banks are stable”. “But a part of the financial sector still has to respond to the consequences that the bursting real estate bubble has had,” he added.
Schäuble also stressed that Spain has not yet made a formal request. “I approve of Spain’s decision to wait for a second independent evaluation of the banks’ needs before the government actually files its request.” His French colleague Pierre Moscovici said: “This agreement will foster new growth across Europe.”
Schäuble and his colleagues seem keen to keep the degree of humiliation for the Spanish government as low as possible. Some ten days ago, Spain’s Prime Minister Mariano Rajoy swore that the Spanish banking sector was not going to need outside help. It was no secret that many governments, Germany in particular, kept urging Spain to accept outside help. Most key players now hasten to point out that the program for Spain’s banks is in no way comparable to the extensive rescue programs for Greece, Portugal and Ireland. But not everybody is quite as subtle. The headlines of most Spanish newspapers on Sunday read ‘Rescue’.
Spain’s prime minister hails the decision
As if we expected anything else.
Oh, and — equally unsurprising — he used the opportunity to pay himself vigorously on the back.
From the BBC:
Spanish Prime Minister Mariano Rajoy has hailed a decision by eurozone finance ministers to help Spain shore up its struggling banks as a victory for the European common currency.
“It was the credibility of the euro that won,” he told reporters.
Mr Rajoy told a news conference in Madrid that efforts by his centre-right government to restore Spain’s public had avoided a wider state bailout.
“If we had not done what we have done in the past five months, the proposal yesterday would have been a bailout of the kingdom of Spain,” he said.
But a notable voice scoffs
And the criticism is apt, if limited.
The Reuters reporter gives a strange twist in his lead paragraph about economist Joseph Stiglitz’s pronouncement on the efficacy of the bailout.
While indirect quote , using the word “may not work”. Nobel Stiglitz himself is directly quoted saying that it won’t word. Period.
Europe’s plan to lend money to Spain to heal some of its banks may not work because the government and the country’s lenders will in effect be propping each other up, Nobel Prize-winning economist Joseph Stiglitz said.
“The system … is the Spanish government bails out Spanish banks, and Spanish banks bail out the Spanish government,” Stiglitz said in an interview.
With Spanish banks, including the Bank of Spain, the main buyers of new Spanish debt in 2011 – according to a report by the Spanish central bank – the risk is that the government may have to ask for help from the same institutions that it is now planning to help.
“It’s voodoo economics,” Stiglitz said in an interview on Friday, before the weekend deal to help Spain and its banks was sealed. “It is not going to work and it’s not working.”
Instead, Europe should speed up discussion of a common banking system, he said. “There is no way in which when an economy goes into a downturn it will be able to sustain policies that will restore growth without a form of European system.”
And there it is again, the same message Angela Merkel has been pounding home. We must have order, and from the center. No use letting democratically elected national governments get in the way of the operations of the money machine.
Never forget: The crisis is debt, which is created by the mortgaging, bankruptcy, foreclosure, and sale of the common institutions and physical and cultural resources of nations, continents, the oceans, the air [carbon trading, anyone], the biosphere, and of life itself.
But the media discourse is limited to palliative measures, and the true nature of the beast is concealed.
Empires are built of debt: The Bank of England was the money machine that built an empire, with the help of private corporations — like the East India Company — created to raise armies and conquer continents.
And for the last 100 years, national governments have been harnessed to private banks by issuing money through private banks, which then create money by lending sums many times greater than the deposits [reserves], profiting from all that exponentially increasing interest.
And to feed all that debt, we sacrifice our future and our world.
Grexit could kill the euro, Moody’s says
The rating agency oracle, befitting its name, was gloomy.
From Greek Reporter:
Joining a growing chorus of critics who say that a Greek exit from the Eurozone would be a disaster for the country, Moody’s Investors Service warned that it could also threaten the existence of the euro, a currency used in only 17 of the 27 European Union countries. “Were Greece to leave the euro, posing a threat to the euro’s continued existence, we would need to review all euro-area sovereign ratings, including those of the Aaa nations,” the rating agency said of its rating system.
A Greek Eurozone exit would particularly affect the sovereign ratings of Cyprus, Portugal, Ireland, Italy and Spain, Moody’s said, other Eurozone countries with struggling economies, adding that Spain is the most troublesome case outside of Greece and could be drastically affected by a drop in market confidence if Greece leaves the Eurozone. Developments in Spain’s banking sector that may require a European rescue package have negative credit-rating implications for the sovereign currency, Moody’s said in a statement.
“Some (other) members of the European Union could also be affected, given the strong financial and trade linkages that exist between the members of the monetary union and the European Union,” Yves Lemay, a Moody’s sovereign credit analyst in London, told Reuters. Moody’s chimed in as the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) which loaned Greece $152 billion in a first package of aid, and is readying a second for $173 billion more, warned that if parties opposed to austerity measures win in the June 17 elections that Greece could be forced out of the Eurozone, and its money pipeline shut off, further rattling investors and markets.
Ah, that debt thing again. . .
After Spain, is Italy next?
Living in California just a modest walk from the fault the U.S. Geological Service says is the likely source of the next San Francisco Bay Big One, we think about seismic systems, those networks of fissures under constant, shifting stress caused by the movement of continents across a shifting planetary crust.
A shift over here sets up new patterns of tension, in turn setting up new and novel patterns of stress and strain across an ever-shifting web of connections.
The modern economic system is similarly fault-ridden and interconnected and suffering from the strains of intolerable debt and riddled with social fission.
Citizens of both Greece and Italy were deprived of democratically chosen prime ministers, with technocratic unelected replacements have presided over the imposition of an austerian regime.
Recent elections in both countries revealed deepening and shifting faultlines, and with Spain spinning out of control, how close is Italy to bailout territory?
From Agence France-Presse:
Even as the global economic community hailed an agreement to rescue Spain’s stricken banks, there was concern in Rome on Sunday that investors could now begin treating Italy as the next weak link in the eurozone.
Those fears have been fueled by a report from Moody’s ratings agency warning that Spain’s banking troubles could be “a major source of contagion” for Italy where lenders are also highly reliant on European Central Bank funding.
“Italy is now the only country in difficulty that has not had to ask for a bailout,” said Federico Fubini, a columnist for the top-selling Corriere della Sera daily, after aid packages for Greece, Ireland, Portugal and now Spain.
Without a stabilisation in borrowing costs on the debt markets for Italy and Spain and a Europe-wide agreement on the banking system, Fubini said that “the uncertainty will be very high and scrutiny of Italy will grow ever higher.”
More from the New York Times’ Landon Thomas Jr.:
Last month, the ratings agency Moody’s downgraded the credit standing of 26 Italian banks, including two of the largest ones, Unicredit and Intesa Sanpaolo. Moody’s warned that Italy’s most recent economic slump was creating more failed loans and making it very difficult for banks to replenish their coffers through short-term borrowing.
Because they have suffered no epic real estate bust, Italian banks have long been seen as healthier than their bailed-out counterparts in Ireland and Spain. And bankers in Italy have been quick to argue that Italian banks should not be compared to those in Spain.
But as economic activity throughout the region comes to a near halt, especially in perpetually growth-challenged Italy, the worry is that bad loans and a possible flight of deposits from the country will be a new threat to banks that already are barely getting by on thin cushions of capital.
And Italian banks cannot avoid the stigma of their government’s own staggering debt load. Italy’s national debt is 120 percent of its gross domestic product, second only to Greece among euro zone countries by that dubious distinction.
Money minister says Britain’s suffering
The culprit? It’s that eurocrisis, says the Tory Chancellor of the Exchequer:
From Gavin Cordon of The Independent:
Britain’s prospects for economic recovery are being “killed off” by the crisis in the eurozone, Chancellor George Osborne has warned.
In a stark message to the leaders of the 17-nation single currency bloc, Mr Osborne said they were facing a “moment of truth” which could determine the future of the entire continent for years to come.
Writing in The Sunday Telegraph he said: “The lesson of the last two years is that treating the latest symptom does not cure the underlying conditions.”
While there were signs a solution to the latest bout of uncertainty in the Spanish banking system was on the cards, Mr Osborne said it would not be enough to end the threat to the UK economy.
“Our recovery – already facing powerful headwinds from high oil prices and the debt burden left behind by the boom years – is being killed off by the crisis on our doorstep,” he said.
Driving Miss Merkel, starring the Bundesbank
While German Chancellor Angela Merkel was at the forefront of the political negotiations leading to the decision to intervene in Spain, there’s another German power that’s both more powerful and more enduring, reports London Telegraph economics editor Philip Aldrick.
The real power, he writes, lies with the Germany’s central bank, the Deutsches Bundesbank, imposed by the Allies after World War II and modeled on the American Federal Reserve.
And it is the Bundesbank which lies behind Merkel’s push for eurozone member states to surrender their financial autonomy to Brussels:
Merkel may be the indisputably dominant force in the eurozone but it is the Bundesbank, Germany’s powerful central bank, that is increasingly seen as the power behind the throne. Since the creation of the euro, and the transfer of monetary policy for the region to the European Central Bank, its tools have been blunted. But, experts and officials say, it still dictates events through the soft power of political influence.
“It is held in extremely high esteem by both the public and the politicians,” one veteran gilts market expert said. “It sets the tone of debate in Germany. It would be incredibly influential in the decision-making process of who should stay in the euro and who should go.”
The Bundesbank has been the keeper of German inflation-fighting orthodoxy and, if anything, its sway is now stronger than ever. After all, its president is Jens Weidmann, who was Merkel’s top economic adviser for the five years before his appointment in February 2011.
“Weidmann knows the Berlin machine. At the same time, he understands how the Bundesbank works,” [Thomas] Mayer [senior adviser at Deutsche Bank] said. “He is now in a very good position to leverage the power of the Bundesbank. And the power of the Bundesbank really goes through its reputation among the German people. Weidmann has positioned the bank as the institution that speaks out in the German national interest. Berlin cannot ignore what the Bundesbank has to say.”
Guy’s a regular Alan Greenspan!
Another, very British, political corruption scandal
Pay for play, in this case, a pleasant tea with a prime minister, payable in pounds only, we presume.
From The Independent’s James Cusick:
Scotland Yard has begun an investigation into the Conservative Party cash-for-access scandal that saw its chief fundraiser claim a £250,000 donation would buy private meetings with David Cameron in Downing Street.
Peter Cruddas resigned as the Tories’ co-treasurer in March after he told undercover reporters that paying the party £250,000 would buy “premier league” access to the Prime Minister, including intimate dinners with Mr Cameron and his wife Samantha in their flat above No 10.
The Metropolitan Police probe is particularly bad timing for Mr Cameron. He and the Chancellor, George Osborne, have been called before the Leveson Inquiry at the Royal Courts of Justice next week. They will be grilled over their links with Rupert and James Murdoch and the appointment of Andy Coulson to No 10 as the Prime Minister’s media director, without customary security checks. Both may have to hand over text messages and emails for publication. The Electoral Commission, which has been conducting its own review of potential offences committed under party political laws, confirmed last night that the allegations against Mr Cruddas “are being dealt with seriously by the police”. The commission has offered the Met team its expertise should it be required.
But it’s not a bug! It’s a feature!
That’s an old software joke, but someone’s loss is someone else’s gain in the zero-sum-world that is the market.
A little stock market “technical glitch” cost a giant Swiss bank a third of a billion. But, hey! It was a giant Swiss bank and the loss was chump change.
But we do love that Facebook was the subject of those technologically caused losses.
From the Associated Press:
Swiss bank UBS AG may have lost as much as $350 million due to technical glitches on the Nasdaq stock exchange the day Facebook went public, according to reports published Friday.
CNBC and The Wall Street Journal, citing people familiar with the matter, reported that UBS is considering legal action against Nasdaq as a result.
UBS spokeswoman Karina Byrne confirmed that the bank lost money due to Nasdaq’s technical issues when the social networking company’s stock began trading on May 18.
Byrne declined to disclose the amount but said it was “not material” to the bank. She said UBS has not taken legal action but is weighing its options for recovering its losses.
Chinese capital buying up Europe
A logical play, given that the economy and austerity-mandated sales of public assets have made for some bargains
Philip Ebels of EUobserver:
In what has been called “a definite turning point,” China’s direct investment in Europe over the last couple of years has multiplied by a factor 10, according to a new study.
EU trade commissioner Karel De Gucht welcomed the news, saying that “we need the money.”
“Our dataset shows a profound post-2008 surge,” says the new study, presented on Thursday (7 June) in Brussels by consultancy firm Rhodium Group. “From €700 million yearly 2004-2008, to roughly €2.3 billion in 2009 and 2010, to €7.4 billion in 2011.”
Most of that money went to France – with more than €4.5 billion in investment over the last decade – the UK (€3bn), and Germany (€2bn).
Outliers are Hungary (€1.7bn) and Greece (€571 million), who according to the study both attracted one large-scale investment from China: Hungary in its chemical sector and Greece in the port of Piraeus.