Faced with growing fiscal challenges and the specter of increasingly trigger-happy credit rating agencies, the new center-right Spanish government has acted to temporarily put a halt to awarding new feed-in tariff (FIT) contracts starting in January 2013. The move is expected to have immediate impacts on approximately 4,500 MW of wind power projects, 550 MW of solar PV projects, as well as a number of projects in other technology classes.
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The main driver behind this decision is addressing the country's electricity system deficit, which stands at over €24 Billion. Compounding the problem is that electricity demand in peninsular Spain has been declining since the global financial crisis of 2008, resulting in significant excess generation capacity.
Where does the electricity system deficit come from?
For over a decade, the Spanish government has prevented utilities from charging consumers the true costs of electricity. In other words, the final price paid by both large and small electricity buyers has been kept artificially low, in an arguably misguided attempt to contain inflation, protect consumers, and maintain the competitiveness of Spanish industry.
Pretty much the same policy they've adopted with water pricing. Spain is currently facing it's worst drought since the 1940s. The 'summer' forest fires have already started, four so far in one week, some crops looking disastrous (wheat, almonds), honey producers appealing for emergency measures... Water has over the last two decades become a real political issue, with some basins getting just enough, others next to nothing, lots of angry people, and government ministers always promising the earth.
They're going to need those solar arrays when they've finished building all the desalination plants they'll need. Power hungry.
But I read the other day that Apple hasn't paid dividends for 17 years.
And 15 years ago, what state was apple in?
Was business booming?
Or was it desperatly fighting off bankruptcy?
Dividends are profits returned to the owners, no profits, no dividends.
When discussing Spain, its very important to note that Spain didnt break the Euro rules, Fance and Germany did.
Spain is in trouble because of epic (and intentional) mismanagement by the ECB.
Absolutely right Dominic, Apple was on the verge of going down the pan. It's easy to forget the bad ol' days of Apple, before the MacBook and the iPod and the Apple stores.
However, Apple does stand out as one of the few firms that is totally focused on the long view. Most firms these days are focused on paying a dividend (and a rising dividend at that) come rain or shine. Not a good idea.
woodpecker wrote:Absolutely right Dominic, Apple was on the verge of going down the pan. It's easy to forget the bad ol' days of Apple, before the MacBook and the iPod and the Apple stores.
However, Apple does stand out as one of the few firms that is totally focused on the long view. Most firms these days are focused on paying a dividend (and a rising dividend at that) come rain or shine. Not a good idea.
Wait a minute. What is wrong with a Caterpillar or an Exxon doing business in a businesslike way and making a profit on every machine or gallon of fuel they sell. The dividends payed out give a return to the stock holders without them going to the expense of selling some of the stock which they wouldn't want to do anyway as their investment is making a profit. The dividends should rise or fall with the profits from each years business but should tend to rise enough to keep ahead of inflation. If you buy CAT right now you will get about a 2.3% return which isn't great but is better then letting you friendly bankster fondle it.
VT
Paying dividends today, at the expense of the long term health of the business isnt the sanest of options.
That said, it shouldnt be up to Directors to decide the long term future either.
In an ideal world, all profits would be distributed as dividends, and any investment would be funded by new stock issue, but taxation makes the ideal impossible.
Sure
There were lots of rules you had to follow to join the Eurozone, and once you were in, some of them stayed.
The two "biggies" are no more than a 3% deficit in any year and a National Debt limit of 60% of GDP.
The 60% limit was never enforced, Italy didnt meet it even when it joined
But the % limit was supposed to be sacred.
Spain never breached it, until very recently, whereas Germany pissed all over it during the mid 00's.
The ECB took over monetary policey from the National Central Banks when they joined the Euro.
Its primary task, was to control inflation (much like the BoE, whereas the Fed has a larger role of controlling inflation and providing economic growth).
It had several measures, its most important, like the BoEs, was its "shopping basket" of Consumer goods that created a Consumer Price Index. But it had others, like a target for M3 (broad money supply)
However, the ECB didnt control inflation.
In the early 2000's, the German economy was in a very bad way.
The ECB responded, but cutting interest rates.
For several years, M3, the broadest money supply, was growing at more than double the official target.
This was great for Germany, and everyone else, low interest rates and rapidly growing M3 mean its suddenly cheaper to borrow for a new audi, your house shoots up in value, so you can borrow for a new kitchen and a swish holiday and so forth. But it is all borrowing.
In 2007, a few things happened.
Firstly, CPI began to rise, and the German economy was back in a healthy position.
The ECBs response, was the aggressivly increase interest rates, and it suddenly began to pay attention to M3. These actions basicaly gutted the club meds.
Admitadly, they *should* have used to boom years to reform, but those werent the rules.
They expected the same treatment Germany got.
If the ECB had done its job properly, Germany would have faced a brutal recession during the 00's, club med wouldnt have had their "miracle" booms, but they wouldnt have had their debt booms either.
If the ECB had treated everyone fairly, Germany would currently be undergoing a massive property and credit boom, and Spain and co would be ticking along, just above recession level, paying down debt and restraining public spending.
It didnt, the rules were ignored so Germany was saved, and now the rules are being enforced, and Spain will burn.
With regard to the ECB's inflation targets - what mechanism as regards 'accountability' is there when (as is the case) their efforts to control inflation via interest rates fail?
As I understand it, in the UK the Gov. set the inflation target and the BoE Monetary Policy Committee (MCP) then set interest rates in an effort to keep inflation below that target, with the ultimate sanction for failure merely being an invitation to explain to the treasury why they think they failed in this regard (i.e. 'no sanction').
The worst part of this story is that these fundamental decisions about economic policy are made by a small, secretive clique operating largely outside of the public's purview. Central bank decisions on interest rates are likely to have far more impact on jobs and growth than any of the policies that are debated endlessly be elected parliaments. Yet, these decisions are made largely without democratic input.
In fairness, politicians bear much of the blame for this situation. They established institutional structures that largely place central banks beyond democratic control. There is probably no bank that is as insulated from the democratic process as the ECB...
..Even worse, the politicians have actually mandated many central banks, like the ECB, to pursue an inflation target to the exclusion of other considerations. This gives the central bankers a license to throw millions of people out of work in order to chase their obsession with inflation.
Giving the central bankers free rein to chase inflation targets could perhaps be justified if they had a track record of success, but they don't...
..The choices they make involve issues on which the public should have input, particularly the tradeoff between higher unemployment and the risk of more inflation.
Naturally, different actors will take different positions on this tradeoff. The financial firms, who tend to be close to the central bankers, are unlikely to be very concerned about the cost of unemployment. However, they will view the risk of higher inflation with enormous trepidation because it will typically lead to large losses for the industry.
The larger public is likely to take the opposite position, as moderately higher rates of inflation pose little cost.
As I understand it, in the UK the Gov. set the inflation target and the BoE Monetary Policy Committee (MCP) then set interest rates in an effort to keep inflation below that target, with the ultimate sanction for failure merely being an invitation to explain to the treasury why they think they failed in this regard (i.e. 'no sanction').
Not quite, the HoC could pass a law to bring the BoE back under direct parliamentary control and sack Merv (actualy, I think Osbourne can do it on a whim).
There no more a Tyrany of the central bankers than there is tyrany of the human rights lawyers.
Theres just incompetant government.
Merv doesnt have to target inflation, lets be honest, he isnt.
Osbourne could say, target 5% economic growth.
Inflation targeting is just the current fad governments are obsessed with.
"Admitadly, they *should* have used to boom years to reform, but those werent the rules."
Yes, they should, but part of my argument is that the leopard will not change its spots. They never would have. That is not what they do.
There is an assumption that Club Med are truthful about the numbers. Or at least as truthful as the rest (Germany etc.) would be. And they are not. The numbers are a fabrication. We know that.
DominicJ wrote:Sure
There were lots of rules you had to follow to join the Eurozone, and once you were in, some of them stayed.
The two "biggies" are no more than a 3% deficit in any year and a National Debt limit of 60% of GDP.
The 60% limit was never enforced, Italy didnt meet it even when it joined
But the % limit was supposed to be sacred.
Spain never breached it, until very recently, whereas Germany pissed all over it during the mid 00's.
The ECB took over monetary policey from the National Central Banks when they joined the Euro.
Its primary task, was to control inflation (much like the BoE, whereas the Fed has a larger role of controlling inflation and providing economic growth).
It had several measures, its most important, like the BoEs, was its "shopping basket" of Consumer goods that created a Consumer Price Index. But it had others, like a target for M3 (broad money supply)
However, the ECB didnt control inflation.
In the early 2000's, the German economy was in a very bad way.
The ECB responded, but cutting interest rates.
For several years, M3, the broadest money supply, was growing at more than double the official target.
This was great for Germany, and everyone else, low interest rates and rapidly growing M3 mean its suddenly cheaper to borrow for a new audi, your house shoots up in value, so you can borrow for a new kitchen and a swish holiday and so forth. But it is all borrowing.
In 2007, a few things happened.
Firstly, CPI began to rise, and the German economy was back in a healthy position.
The ECBs response, was the aggressivly increase interest rates, and it suddenly began to pay attention to M3. These actions basicaly gutted the club meds.
Admitadly, they *should* have used to boom years to reform, but those werent the rules.
They expected the same treatment Germany got.
If the ECB had done its job properly, Germany would have faced a brutal recession during the 00's, club med wouldnt have had their "miracle" booms, but they wouldnt have had their debt booms either.
If the ECB had treated everyone fairly, Germany would currently be undergoing a massive property and credit boom, and Spain and co would be ticking along, just above recession level, paying down debt and restraining public spending.
It didnt, the rules were ignored so Germany was saved, and now the rules are being enforced, and Spain will burn.
Completely agree with this.
The so-called economic mismanagement of some of the southern European countries is and has been a problem for them over the decades. However, it has nothing to do with this crisis. If it did, then Spain and Greece et al would have had this crisis long before now. It’s due to the huge amount of money thrown at these them since joining the Euro and also the EU project engineers in Germany and France wilfully turning a blind eye to their finances when they joined because it politically suited them.
Also, the position of the Germans, holding their noses in disgust at the financial profligacy of some of the Southern European countries’ banking systems is rank hypocrisy. The German banks played the same game. Only, instead of shitting in their own back yards, they shit in the back yards of their New Southern European friends, In other words, German banks played the same game of insane lending as anyone else, they just did it by proxy. Now, German and French politicians are quite content to see their southern European neighbours burn in order to protect their own banking systems from the consequences of their own previous profligacy.
And, of course, the British government is quite content to cheer from the sidelines because our banking system is as up to its neck in it as the worst of them.
About the truthfulness of numbers in southern Europe:
We have a very stark example with Greece about untruthfulness. My experience in Spain is that every number is a fabrication, and laws and regulations are rarely enforced.
In my view, 100% of the national data for the housing market is complete misrepresentation (bank managers and notaries lie about each and every transaction, to a highly material extent i.e. the standard under-declaration is 50%); so any data about assets and debts is a joke;
It's standard practice for any organisation to produce 2, 3 or 4 sets of accounts for different audiences; so any data that related to any organisation is worth less than a grain of sand;
It's standard practice for serving civil servants of all hues, levels and areas of practice, to run a private business that exploits the system and files rubbish with the authorities on behalf of their clients; that includes everyone from the military to the tax people;
It's considered quite normal not to file statutory financial returns (which in the UK would result in fat fines and eventually striking out, but in Spain doesn't seem to have any effect at all); there have been major quoted companies that don't even file their public data for years on end... and nobody seems to blink; no data, no problem!;
Even quite staid companies - M&S, when it was still in southern Europe, comes to mind - become embroiled in quite astonishing black market operations; this may be through pure innocence, because they just don't expect that kind of thing from their quoted company partners;
Fraud and theft and corruption and bribery are rife across the various autonomous region administrations (which are much more powerful and have much greater financial resources than the regions in the UK) and at local level;
You actually can't even believe the info on the land registry: the amount of land stated for each plot also tends to be, ahem, 'highly unreliable'. I've seen some extraordinary cases where hundreds of hectares just appear or disappear...
And it all goes on year after year after year, decade after decade. Nothing changes. There is no Freedom of Information, there is no accountability, there is no transparency. The amount of conspiracy theorising is something way beyond what I've found in any other country I've spent time in, perhaps as a consequence of all the above.
When you speak to anyone about why they conceal or misrepresent things - for example, why they only produce pay slips written in pencil that you can look at once but cannot keep as they are being put into one of their safes; or why they need four sets of accounts; or why they never declare what actually goes on; or why they break all the rules; why nothing is as it seems; there is always a very plausible story of the kind that you would not hear in the UK. (I hear a lot of stories in my work across organisations in the UK, but I've never hear the kind of stories I would hear in Spain.)
And their explanations fit quite neatly with the whole fraud/corruption/theft/bribery story of government over recent decades. They say you cannot trust anyone. They say everything is a conspiracy to rob. They say they cannot let anyone know what is really going on, as there will be people, their enemies, who try to thieve, rob, etc.
And then they give you the details of their experiences about how the tax inspectors in their city have been all become multi-millionaires through bribery and blackmail. And you check the press and find that yes, tax inspectors in their city were finally found to be doing this, but nothing really happened to them and they are still tax inspectors, and the data they created, well who knows.
And they say that judges in their city were putting ordinary people in prison for months just in order to get money out of them (regularly collected by a nephew of a judge in a central car park). And you check the press, and find that that was the case, but the judges were basically kicked upstairs (and hence got even more powers) as the authorities were all shit scared of what they were doing, so they have even more power than before. Etc.
And they say you cannot go to court either, as it takes many, many years to even get a first hearing. Which is true. (Which is why even well-known, powerful and perhaps staid companies such as cava houses have been known to employ heavies to break the limbs of those who cross them. Unpleasant, but locally considered necessary owing to the failures of the legal system.)
So they are, in a twisted kind of way, absolutely right. In such a climate, unfortunately, only the fools tend to say the truth, in any context. And if you are not - what I would consider - on the make (that is, breaking the law in some way to your financial advantage), you are considered a fool, in Spain. This attitude is rife across the private sector and public administrations.
I remember one particular leader of the Balaerics administration who said, "I'm in politics to line my pockets" (his words were "Estoy en la politica para forarme"). And quite a few at the time said, 'Yes, we know' and some others said 'Let's have a meeting'. While some people laughed - the reaction of surprise to such a blatant expression of objective - he was, in effect, expressing a consensus understanding.
You really have to be out of your tiny mind to believe any numbers at all that come out of Spain. I really would class the entire thing as smoke and mirrors.
DominicJ wrote:Spain never breached it, until very recently, whereas Germany pissed all over it during the mid 00's.
With of course France being equally at fault, again in the early Noughties. The Anglo press pointed this out very loudly at the time.
The considered and thoughtful response to this criticism by the French and Germans consisted in effect of them sticking their fingers in their ears and singing "NAH NAH NAH I can't hear you TUM TI TUM!!" until the nasty Anglos gave up. After all, what could anybody do to the core members?
So, yeah, the moral posturing by the Germans over the past 18 months has been a bit repulsive at best.
Suss
Last edited by Susukino on 25 Mar 2012, 12:33, edited 1 time in total.
Wait a minute. What is wrong with a Caterpillar or an Exxon doing business in a businesslike way and making a profit on every machine or gallon of fuel they sell. The dividends payed out give a return to the stock holders without them going to the expense of selling some of the stock which they wouldn't want to do anyway as their investment is making a profit. The dividends should rise or fall with the profits from each years business but should tend to rise enough to keep ahead of inflation. If you buy CAT right now you will get about a 2.3% return which isn't great but is better then letting you friendly bankster fondle it.
