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Title: Spain faces 'total emergency' as fear grips markets
Source:
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URL Source: http://www.telegraph.co.uk/finance/ ... ncy-as-fear-grips-markets.html
Published: May 30, 2012
Author: Ambrose Evans-Pritchard, International b
Post Date: 2012-05-30 19:00:28 by Capitalist Eric
Keywords: None
Views: 1451
Comments: 1
“We’re in a situation of total emergency, the worst crisis we have ever lived through” said ex-premier Felipe Gonzalez, the country’s elder statesman. The warning came as the yields on Spanish 10-year bonds spiked to 6.7pc, pushing the “risk premium” over German Bunds to a post-euro high of 540 basis points. The IBEX index of stocks in Madrid fell 2.6pc, the lowest since the dotcom bust in 2003. Chaos over the €23.5bn rescue of crippled lender Bankia has led to the abrupt resignation of central bank governor Miguel Ángel Fernández Ordóñez, who testified to the senate that he had been muzzled to avoid enflaming events as confidence in the country drains away. Markets are on tenterhooks as Spanish yields test levels that forced the European Central Bank to respond last November with its €1 trillion liquidity blitz. “Nobody is short Spanish debt right now because they are expecting ECB intervention,” said Andrew Roberts, credit chief at RBS. “If it doesn’t come -- if we take out 6.8pc -- we’re going to see a hyberbolic sell-off,” he said. Italy felt the full brunt of contagion from Spain on Wednesday, with 10-year yileds back near 6pc. The euro fell to a 2-year low of $1.239 against the dollar. Crude oil and metal prices plummeted and save-haven flight pushed rates on 2-year German debt to zero. Gilt yields fell to 1.64pc, the lowest in history. Mr Roberts said the collapse in Spanish tax revenues is replicating the pattern in Greece. Fiscal revenues have fallen 4.8pc over the last year, and VAT returns have slumped 14.6pc. Debt service costs have risen by 18pc. The country is caught in a classic deflationary vice: a rising debt burden on a shrinking economic base. “Once you get into such a negative feedback loop, you can move beyond the point of no return quickly,” he said. The European Commission has softened its stance, giving Madrid an extra year until 2014 to cuts its budget deficit from 8.9pc to 3pc of GDP, though this still amounts to a fiscal shock. Brussels told premier Mariano Rajoy to widen the VAT base and speed retirement at 67. There is no sign so far that the ECB is ready to relent as Frankfurt and Madrid cross swords in an escalting test of will. The ECB has scotched Mr Rajoy’s tentative plans to recapitalize Bankia by drawing on ECB funds. “It is dangerous to play chicken when you are driving a Seat and the ECB is driving a tank,” said professor Luis Garicano from the London School of Economics (LSE). Mr Garicano said Madrid has overplayed its hand but the ECB needs to be careful too since Spain is increasingly tempted by the example of Argentina, which recovered quickly after leaving its dollar-peg. “The Rajoy people will do anything to avoid the slow agony of Greece. There is massive disaffection with the euro in Spain and papers like El Pais and Vanguardia are turning anti-German,” he said. The latest PEW survey shows that just 37pc of Spaniards think the euro has been good for the country. Most still want to stay within EMU but the number is falling fast. The survey found that 40pc of Italians want to return to the lira. The ECB is pushing Spain to accept a loan package from the EU bail-out fund (EFSF), the proper body for fiscal rescues. Mr Rajoy has refused vehemently. Any recourse to the EFSF is viewed with horror in Madrid, entailing an unacceptable loss of sovereignty.
Poster Comment: As I said months ago, Greece would be the first domino. Spain is the second, even though Greece hasn't "officially" defaulted. That comes "officially" on June 18. When the on-going bank-runs collapse the Spanish economy, there will be NO WAY to stop the contagion from spreading to France, England, Ireland, Italy... Germany can't bail out ALL of Europe, nor can the Federal Reserve stem the tide (the European Union is 4x the American economy). China is facing inflationary pressures as their economy sags, and they're more interested in taking care of domestic issues than bail out a bunch of lazy Greeks. THERE IS NO WAY TO STOP THE ON-GOING COLLAPSE. Bilderbergs can meet and make their "plans." As the old Russian proverb goes, "man plans, God laughs."
A screen displays the IBEX 35 at Madrid's stock exchange on Wednesday.
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#1. To: Capitalist Eric (#0)
Mexico's Bolsa closed 15 min early yesterday. Friday, June 01, 2012 1:28 AM Hyperbolic Selloff Coming? IMF Discusses Spanish Contingency Plans; Madrid Denies Plans; Hispabonos Dropped From Cabinet Discussion The latest word of the day is the already approved, then denied, then tabled plan to implement hispabonos was dropped from discussion Friday's cabinet meeting according to La Vangauardia. In the last three months alone, Draghi has poured €3 trillion into eurozone banks in an effort to keep the day of reckoning at bay. He must have known this was an entire waste of taxpapers’ money from the start, and so as always I’m left wondering whether the guy is just an incurable optimist, or a sociopath more than happy to accept a world in which the only things left are bankers and their head offices. But whatever his motives, we are only one major bank collapse away from the sort of inflexible timetable that started the First World War."
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