For about two months, I have been writing about the “recovering Eurozone meme” that has become prevalent in the Mainstream media. I debunked the Spanish last month here:
so I thought it would be a good time to examine the true Spanish economic picture. Conveniently, Bloomberg published an article detailing the worsening conditions in Spain. The piece is excellent but makes a standard mainstream media error. It attributes lower bond yields with investors jumping back into the Spanish debt markets, but this is untrue. Foreign holdings of Spanish bonds plunged from 54% at their peak in 2010 to 34% in July where they have remained despite the rally.
Spanish banks have been borrowing money from the ECB and purchasing the bonds in a lucrative carry trade. While this has brought temporary relief, it has also strengthened the dynamic between distressed banks and a shaky government.
The Spanish economic situation is getting worse in every single way:
- Unemployment continues to rise with 6mm people out of work.
- Every month brings a new non performing loan record. For November the number rose from 10.71 to 11.38%.
- Bank lending decreased 3% from October to November.
- Economists predict a further 1.5% decrease in GDP for 2013.
Don’t believe the hype. I have been of the opinion that Spain could continue without requesting a bailout indefinitely, but I am beginning to change my mind. The ECB’s money printing was not enough to keep smaller Greece off the dole, and Spain’s economic situation is rapidly deteriorating along the same lines.