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Spanish report
by Euro Reporter
2012-06-08 10:13:28
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Spanish leader gives up no-bank bailout mantra

Spain's Prime Minister appeared Thursday to have abandoned his insistence that the country's troubled banking sector will not need an external bailout, as for the first time he avoided ruling out such an option. Germany, meanwhile, without mentioning Spain by name, also gave its clearest hint yet that it thinks Spain should tap the European rescue fund before its banks become too toxic to handle. Spanish Prime Minister Mariano Rajoy said he would wait for the results of an IMF report next week and then two independent audits before announcing how much the banking sector might need for recapitalization. But for what seemed to the first time in public, he did not rule out the idea of the money coming from outside. Until now it has been his firm line that Spain's banks, while hurting from an imploded real estate bubble and stuck with lots of foreclosed property and non-performing loans, would not need an external rescue.

"At that point I will give my figure and the government will say what the system needs to recapitalize itself," Rajoy told a news conference, referring to how much Spain's banks might need. With that number in hand, and after consulting with European colleagues and officials, Rajoy said, "we will take the decision that is best for the overall interests of the Spanish people." German Chancellor Angela Merkel said Thursday after meeting with British Prime Minister David Cameron: "Considering the problems we are facing today, it is important to highlight once again that we have created the instruments necessary to support (countries) in the Eurozone, and that Germany is willing to apply these instruments whenever necessary." She added, "This expresses our firm political will to stabilize the Eurozone, so that the Eurozone can contribute to stable economic growth worldwide."

Earlier, Spain raised (EURO) 2.1 billion ($2.62 billion) Thursday from the bond markets -- but investors demanded a higher interest rate out of concern that the country's troubled banks were weighing heavily on government finances. The successful sale of medium and long-term debt came just days after Finance Minister Cristobal Montoro warned that the high interest rates demanded by investors on Spanish debt in recent weeks indicated "the door to the markets is not open for Spain." Spain's banks are saddled with billions in soured property investments following the bursting of the country's real estate bubble. At the end of May, the most stricken lender, Bankia S.A., said it needed (EURO) 19 billion in government aid to shore up its finances against losses on its toxic home loans. But Spain only has (EURO) 5 billion left in a (EURO) 19 billion fund that it established in 2009 to help banks and has not mapped out a plan for raising the extra funds. Estimates have put the cost of a complete bailout for the Spanish banking sector between (EURO) 40 billion and (EURO) 100 billion. Rajoy Thursday refused to offer an estimate. Spain would like to get European aid for its banks but is reluctant to ask for it because under current rules the aid would have to be given to the government. That would allow Brussels to dictate policies to Madrid, something the Spanish government is keen to avoid. It would also further hit investor confidence, sending interest rates on its bonds even higher.


Spain’s hurting banks at heart of euro-zone’s chaos, saddled by property from a boom gone bust

Spain is under increasing pressure to find a quick way to save its troubled banking sector from collapse. Politicians and investors around Europe are worried that the recession-hit country will not find the money to cover the toxic property loans weighing its banks down. The expectation now is that Spain’s government will have no choice but to seek an international bailout to help it bolster its lenders.

The concerns have sent Spain’s borrowing costs on the international bond markets to worrying levels — close to the points where most market-watchers say a country cannot maintain its debt. Spain, previously rated A, may need as much as €100 billion ($126 billion) to bolster its banking system, compared with an earlier estimate of about €30 billion, U.S credit rating agency Fitch said Thursday. Fitch went on to downgrade the country to BBB, two notches above junk and warned that the country faced further downgrades. In its most recent debt auction Thursday Spain managed to raise €2 billion ($2.52 billion) — but at much higher rates than in previous bond sales.

Earlier this week, the country’s finance minister, Cristobal Montoro, warned that the country was rapidly running out of ways to finance itself and that the “the door to the markets is not open for Spain.” In his most explicit plea for Europe to come to Spain’s aid, Prime Minister Mariano Rajoy told a Senate session the next day that Europe “needs to support those that are in difficulty.” On Thursday, Rajoy for the first time didn’t stick to his standard line that Spain has no intention of seeking outside help. And Germany, without mentioning Spain by name, gave its clearest hint so far that it thinks the county should tap the European rescue fund before its banks become too hot to handle.


Young Spanish jobless face decades of hardship

FOUR years ago, Wendy Atkinson Navarro, 36, had a job, a husband and a home. Now, she is divorced, jobless and living with her mother near Madrid, a casualty of Spain's recession. ''My self-esteem is a mess,'' Atkinson said. ''My nephew is 15 years old, and the only difference between him and me is I have kids.'' More than 4 million Spaniards are jobless in a double-dip recession that is hitting young people hardest. More than half of 15-to-24-year-olds are unemployed, and 37 per cent of those 25 to 34 live with their parents. Rather than starting families and building careers, many young people spend their days playing video games. As their skills stagnate, they risk falling behind permanently, said Katherine Newman, a sociologist and dean at Johns Hopkins University in Baltimore. ''For the rest of their lives, they're damaged,'' said Newman, who has written about labour and families in Spain. ''Their earnings are depressed for 20 years; they don't marry at the same rate.''

Joblessness, combined with the destruction of household savings, ''tears the social fabric apart'', she said. Pepe de Uriarte, 32, an unemployed publicist in Madrid, spends his days looking for jobs online, cooking, playing golf and watching television. If he doesn't find another job before his €1000 euro-a-month ($A1200) unemployment insurance runs out, he may end up moving in with his parents. Like many young Spaniards, de Uriarte has never had a permanent job, instead signing contracts that have ranged from two days to 10 months. ''I can't plan,'' he said. ''I can't set up a family, I can't buy a house, I can't do anything.'' Spain's system of temporary job contracts is at the root of its record unemployment, which is more than double the average of the 27 countries in the European Union, said Juan Dolado, an economics professor at the Carlos III University in Madrid. Temporary contracts were created in the 1980s so employers could avoid hiring workers full-time, which required 45 days of severance pay for every year worked. Temporary employees get only eight days' severance and, by 2007, they made up 33 per cent of the Spanish workforce, Dolado said.

More than half of Spaniards who lost jobs had temporary contracts, and most of them were under 40, he said. Reforms in February reduced the mandatory severance to 33 days for permanent contracts and, over time, will increase the required severance pay for temporary contracts, he said. Spain's economy is forecast to shrink this year and unemployment will continue to rise as the government cuts spending and banks tighten credit. Since the recession began, Madrid has seen people find innovative ways to make ends meet, including an upsurge in the number of street artists working as living statues. Atkinson, whose father is English, has lived all her life in Spain. Her mother has supplied her with a credit card for expenses and gives her instruction on how the household runs. ''Now we have discussions about how to set the dishwasher,'' Atkinson said. ''My son said, 'You're not in charge, your mother is in charge.' It hurts.''

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