Spain in Much Worse Shape Than Reports Indicate

Exclusive: Spain ready for bailout, Germany signals wait- sources | Reuters.

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I have been writing for a couple of weeks that Spain would not ask for a bailout before regional elections on October 21 and was not alone in this prognostication. I was wrong.

The thinking was that Rajoy wished to appear strong before these elections, and Spain had enough money to last until then anyway.

It seems that Spain does not have as much money as the mainstream media was reporting. On September 6, I wrote an analysis of the Spanish debt situation:

https://dareconomics.wordpress.com/2012/09/06/actual-spanish-financing-needs/

I came to the conclusion that Spain needed about €91bn to finance its budget deficit and maturing debt between now and the end of the year. Spain has sold some debt since I wrote the report, so the number is now down to €81bn. If we subtract €20bn of cash on hand in the treasury, Spain needs €61bn for the last quarter.

There is no way that Spain can sell €20bn per month into these markets between now and New Year’s day. It has only been able to sell about €14bn per month this year, and the majority of this issuance took place under more favorable conditions in the first quarter.

The Germans are continuing their pattern of promising to do everything to save the euro. Talk is cheap, and they continue to prevaricate rather than putting their money where their mouths are. Just a few days ago, Germany and the northern tier rolled back their promise of aid for ailing periphery banks:

https://dareconomics.wordpress.com/2012/09/27/eurotalk-is-cheap/

Is Germany merely stalling to spring the bailout votes on its electorate at a more propitious time? Is it waffling because it is cutting the chord on these bailouts and wants time to prepare itself for the shock? Or does Merkel have something else up her sleeve like a country-wide referendum on the eurozone and bailouts?

We’ll find out soon.

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3 thoughts on “Spain in Much Worse Shape Than Reports Indicate

  1. If you were wrong, you were only wrong in assuming Spain could go on until New Years… I keep reading your entries merely because it is soothing not to feel utterly alone in doing the actual math.
    I’m going to point back to your description of Hitler’s motivation to not surrender. That’s exactly where Rajoy is right now.
    It’s not just the elections coming up in October, but also there’s a short selling ban to be lifted on October 23rd. Never mind December, November’s going to be a joyride.
    According to Rajoy, every single event since his election is “someone else’s fault”. Either the previous government, the EU, Germany,or the Spanish people, it doesn’t matter. I’m afraid he’ll keep still and then one day go “whoops, there’s no cash”, and whatever happens then will, again, be none of his business.
    An interesting detail is that the PP recently blocked a plan for improving tax fraud investigation, just after raising taxes, and at the local level, PP mayors are allowing selective tax cuts. (???)

  2. Nothing of the sort is going on. At the same congress session in which more efficient fraud prosecution was turned down, another proposal for capping politicians’ pay and benefits was also overturned. By 306 votes against 6 votes.

    There has only been one move involving politician’s salaries, and it’s this: Local representatives in one Comunidad Autonoma who have no other jobs (receive no pay from private companies for counseling, etc) or extra office, will see their public pay reduced from 3,000 to 1,000 € monthly. Meaning, if I myself set up my own party and manage to be elected a representative, I will have to live on that. This effectively bars access to the young and dangerous.
    Please bear in mind that each politician whose name you know is cashing in about 3 public salaries on average, from cumulative positions.

    Most ministers and congressmen who were born and own anywhere between 3 and 10 bits of real estate in Madrid are getting paid a relocation extra each month because they were elected as representatives for a different Comunidad Autonoma.

    The Administration’s budget has reduced personnel expenses but raised the part of budget reserved for top (unelected) officials.

    While our retirement age is raised to 67 years of age, and pensions will be recalculated down, any representative can get the maximum retirement pension after 7 years, plus a permanent indemnity for just having been “elected” into office, even if they only stay in said office for 1 day.

    Spain has close to 460,000 politicians for a population of 47 million.

    Arrested protesters on the 25th of September were accused of attempting a coup. Yesterday the Judge assigned to the case rejected the accusation, the PP publicly labeled him an “anarchist mommy’s boy”. (direct translation)

    There is no way to do any analysis of the spanish situation without taking into account savage clientelism.

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