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Looks like the bond markets are now fixing their cross hairs on Spain\Portugal.

This week’s sharp rise in Spanish 10-year bond yields to 5.2 per cent is an indication of growing concern in eurozone bond markets that the fiscal crisis in Ireland could spread to other debt-laden countries including Portugal and Spain.

The Spanish 10-year bond yield has now risen more than 100 basis points since the start of the month and 50 basis points in the last week alone.

Ouch!

Whilst Ireland was small enough to swallow whole I'm not sure Spain is.

FT

However Spain does seem to be a different beast to Ireland (which was drowning in debt).

Spanish external debt is $2.17 trillion ; GDP is $1.36 trillion and population is 46m so external debt = 1.6 times GDP and external debt per capita is $47,000.

Being as on the surface it appears to be in a much stronger position than Ireland does anyone know why the markets are hammering it?

Maybe rising unemployment coupled with an over generous pension\benefits system?

Any Spanish experts on here?

As a expert on everything I would say in regard to the Spanish situation that it is the massive hidden debts in the Spanish banking system which are the main concern for the international wolves (to use a Stalinist phrase on the capitalists).

Those hidden debts are a result of the implosion of the Spanish housing bubble.

Beria's remarks tell a small part of the story.

Some other parts:

First: Spanish unemployment has been grim since Franco died. Youth unemployment (under 25) was already over 40% over a year ago. However, social security benefits are nowhere near as generous as here (for non-families), so the impact on government coffers is not so great. But there's huge hidden unemployment not in that 40% - people often remain students well into their 30s as there's nothing else to do (or if they're any good they emigrate - pretty much like Ireland). The costs of taking on staff are huge (social security is >30% for employers; and huge legal issues too) so there's always a problem raising employment levels, and particularly permanent (as opposed to temporary) employment.

And everyone's ambition is to get a cushy number in the public sector - many of them spend a decade just trying to pass the exams to get them to a life of leisure in the public sector (that's how it's seen).

Second: The Spanish housing bubble was pretty extreme, but the official figures did not even reflect the extremes of what went on. Around 50% of property prices are exchanged in cash, so official figures are a joke. The main issue here is that you just cannot place any reliance on statistics collected by any government agency if those stats have anything to do with monetary data. In general, info in Spain can be bad (e.g. IBEX-30 firms that don't file accounts for years!) - so I would say (knowing Spain well and Greece a little but less) that many bad practices are common to both. And that includes by the banks (In my experience, it seems to be standard for bank managers to fake documentary information, for example).

Also people in Spain are perfectly willing to sit on overpriced property for 5 or 10 years (most people in Spain rarely move home). So those assets that are over-priced may take many years to emerge.

Third: Spanish state pensions are pretty fab. You often get a full pension after just 15 years of contributions (compared to around 39 in the UK) and the actual pension is much more generous than here. Many Spanish families live off the pensions of their old folks (they all live together - a disaster when the old folks die). The number of pensioners is high and rising fast, and the Spanish birth rate (particularly Catalonia) fell through the floor. They're relying on North African immigrants in low-paid (agricultural, manual) jobs to pay the bills. But the ratio of workers in employment: pensioners has been really bad and getting worse for over a decade.

Fourth: Huge reliance on a few sectors (construction! and tourism and providing fruit and veg for Europe), with some of those sectors in trouble. Construction did very well from the EU (and from tourism), but they are now facing the same issues as Florida and Ireland in this regard.

Fifth: the Spanish regions (devolved administration similar to Scotland etc.) are BIG spenders. And now they all have massive debts. The devolution model means there is little central control over huge areas of spending. Some regions even have taxation devolved (i.e. the only non-devolved areas for them are national security, defence and international aid).

Sixth: In the longer term, Spain is facing huge issues on climate (desertification, water shortages since the 90s, rioting farmers with no water etc.). They are busy building desalination plants that they may not be able to power in the future (power hungry). Which I think probably spells disaster for the whole fruit and veg basket of Europe thing.

I'm not saying at all that any of these factors have caused recent movements; they are really more structural issues that should be taken into consideration by the markets (but are they?). I'm only saying that these issues should be taken into consideration when looking at Spain and seeing why it might behave in the way it does.

It may not be popular to say it, but it sounds like Spain needs a strong dose of fiscal retrenchment to get its house in order, cut welfare, slim down the public sector and focus on a private sector led growth strategy.

A different take on the Iberian/Euro crisis from a Marxist angle.

http://www.wsws.org/articles/2010/nov20 ... -n26.shtml

There are also major differences between all of the countries singled out for attack by big finance.

Unlike Greece and Portugal, Spain has a relatively low level of state debt. Spain did, however, go through a major property development bubble (like Ireland) and also has the highest rate of unemployment in western Europe. Unlike Ireland the Spanish banking system, based on high levels of capital provision, has so far emerged relatively unscathed from the current crisis

What is taking place is nothing less than a fundamental restructuring of class relations in Europe and worldwide. At the heart of this restructuring is a massive reallocation of social wealth into the vaults of the banks and the pockets of the international finance oligarchy.

Already there is speculation in the international press that other, even bigger European countries could be the next victims of the finance Mafia. An article in the Financial Times on Wednesday drew a parallel to the current activity of investors in Europe with the wave of speculation that ended with the banking crash of 2008. "Like ducks lined up in a shooting range, markets are picking off countries one by one,” it declared. “For Bear Stearns and Lehman Brothers, read Greece and Ireland. The question is whether the rot can be stopped as it was with banks or if Portugal, Spain, Italy and perhaps even France will be sucked in.”

There is already a broad consensus among European political elites that the raising of additional huge sums of money on a European scale—a euro rescue package Mark 2—would prove to be unacceptable to electorates. A collapse of the Spanish economy would throw the euro into turmoil and could even result in the breakup of the eurozone, with incalculable consequences.

What is going to tank first? Pound, Dollar or the Euro?

ziggy12345 wrote:What is going to tank first? Pound, Dollar or the Euro?

Euro, IMHO, the pound and dollar will be reprieved for a bit as investors seek a relatively safe haven from the Euro.

Perhaps they all read yesterdays "I" A new newspaper.
On page 2 they state "the euro fell to its lowest level for 2 months yesterday, despite policymakers insistance Portugal and Spain could manage with a bailout"

The context suggests that what they meant was ---manage withOUT a bailout.

Spain is Ireland to the nth degree as far as construction and property
madness is concerned. I was astounded at the ammount of water sucking holiday apartments going up as far back as the mid 80s when I hitchhiked from Barcelona to Malaga.

Every time I went back subsequently it just seemed to grow even madder. Doing part of the Camino a few years ago provided an excellent opportunity to observe just what low traffic volumes there were on the incredibly expensive and impressively over engineered motorways.

I really love Spain and her people and fear for their future even more than our own.

Roger Adair wrote:Spain is Ireland to the nth degree as far as construction and property
madness is concerned. I was astounded at the ammount of water sucking holiday apartments going up as far back as the mid 80s when I hitchhiked from Barcelona to Malaga.

Today it's water-sucking holiday apartments and 'urbanisations' (thousands of developments, millions of 'homes'), the water-sucking golf courses that often go with them (huge depletion of water table and these guys often pay nothing for it) and water-sucking irrigated fruit and veg in semi-desert areas (likewise). Spanish governments always want to solve the problems of the arid and poor south and south east by supporting things that require a heck of a lot of water.

More than ten years ago the government was already taking water in ships to places like Ibiza. They've been talking about drilling a water tunnel through the Pyrenees for donkey's years... It'll all end in tears.

woodpecker wrote:

Roger Adair wrote:Spain is Ireland to the nth degree as far as construction and property
madness is concerned. I was astounded at the ammount of water sucking holiday apartments going up as far back as the mid 80s when I hitchhiked from Barcelona to Malaga.

Today it's water-sucking holiday apartments and 'urbanisations' (thousands of developments, millions of 'homes'), the water-sucking golf courses

Ban golf (except in Scotland). It is an abomination and a waste of land and water.

Lord Beria3 wrote:It may not be popular to say it, but it sounds like Spain needs a strong dose of fiscal retrenchment to get its house in order, cut welfare, slim down the public sector and focus on a private sector led growth strategy.

Growth growth growth growth growth SPLATTTTT!

We cannot grow our way out of this. When will people learn?

UndercoverElephant wrote:

Lord Beria3 wrote:It may not be popular to say it, but it sounds like Spain needs a strong dose of fiscal retrenchment to get its house in order, cut welfare, slim down the public sector and focus on a private sector led growth strategy.

Growth growth growth growth growth SPLATTTTT!

We cannot grow our way out of this. When will people learn?

Growth, as Beria mentions it, isn't the problem here... it's relying on the private sector.. which is the very thing that caused this problem in the first place.

It's like asking the arsonist to call the fire-brigade... and the fire-brigade are made up of the arsonist's mates..

Beria3.. really.. think.

1. slim down the public sector and focus on a private sector led growth strategy.

2. slim down the private sector and focus on a public sector led growth strategy.

Why should 1 be more effective than 2?

Maybe the strategy should be to realise that growth isn't a strategy any more.