Tuesday, June 15, 2010

Funding Problems in Spain

The spread between Spanish bond rates and the German bund has climbed to 200 basis points.

The problem is spreading to Spain's private sector as it is not clear what exposure private sector firms may have to Spanish government debt.

FT reports:

Francisco González, chairman of BBVA, Spain's second-biggest lender, said: "For the majority of companies and Spanish financial firms, international capital markets are closed."

Carlos Ocana, treasury secretary, said the credit freeze affecting Spanish banks and corporations was "definitely a problem"

1 comment:

  1. My comment has to do with the concept of a growing Democratic Deficit withing the EU.

    Currency traders called the markets higher today; and much higher in the case of BBVA which gapped open 2% higher and then closed 5% higher. This is investment surrealism and denial of reality, in other words a last gasp of investor exuberance, before the reality of debt deflation caused by the European sovereign debt problems described in your posting settle-in.

    EuroIntelligence reports in its daily morning news-briefing Spain Cut Off From International Financial Markets. ”The situation in Spain has deteriorated, as the country’s private sector is now effectively cut off from international capital markets; the ECB has become Spain’s sole source of finance, as Spanish banks now account for 16.5% of ECB lending, almost twice the Spanish share in the ECB of 9%; it seems that the Spanish government’s austerity plan is undermining investors’ confidence in the recovery; Spanish 10-year bonds rise by a quarter point; Spanish government angrily rejects German media reports that a bailout is imminent; European Commission blames Germany for inciting rumours; Spanish government is now considering to publish the results of the stress tests in full to placate investors. The Spanish banking system is now wholly reliant on the ECB for funding.”

    A growing Democratic Deficit is exemplified by Spain’s reliance on the ECB. The nation of Spain is no longer a sovereign nation state: it has lost its banking authority and thus Spain has lost its sovereignty. The ECB in Frankfurt is sovereign over Spain … Spain is simply a collection of people in a sovereign entity known as the eurozone. Those in Spain ar no longer citizens of a sovereing nation state; rather they are residents in a region of global governance.

    The only monetary funding for Spain’s economy is the ECB. Apparently there is no commercial financing for Spanish businesses which use credit to meet payroll, to buy inventory and pay bills as they come due. This means businesses are going to fold, that is go under due to impedance of monetary flow. The fact that monetary funding is not coming through the financial market place, but rather through the ECB, is stunning and revolutionary. The ECB, a bank outside of Spain, is the only and last lender of resort to businesses. This centralizes money and economic authority in Frankfurt and in Mr. Trichet. He is the Banker of Spain and monetary authority of its economy.

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