Interventionist Policies and Youth Employment Don't Mix

50% of workers under 25 are unemployed in Spain and Greece. It's a combination of high minimum wage laws, the nanny state and regulations keeping youth from getting jobs---a truly sad situation.

Bank Run in Spain and Its Destabilizing Ramifications for the Entire EU

Spanish banks are borrowing record amounts from the European Central Bank.

According to FT, Spanish banks borrowed €85.6bn ($105.7bn) from the ECB last month. This was double the amount lent to them before the collapse of Lehman Brothers in September 2008 and 16.5 per cent of net eurozone loans offered by the central bank.

“If the suspicion that funding markets are being closed down to Spanish banks and corporations is correct, then you can reasonably expect the share of ECB liquidity accounted for by the country to have risen further this month,” said Nick Matthews, European economist at RBS.

Bottom line: This is nothing but a sign of a run on Spanish banks. They can't get funding in the markets and there is a steady withdrawal of funds from the banks. For all practical purposes, the ECB is supporting the Spanish banking system with life support measures. This means that the ECB will have to drain funds from elsewhere in the system to sterilize this rescue operation. Without sterilization the effort becomes very inflationary, with sterilization the effort distorts the entire EU economy. It's all destabilizing.

The only reasonable alternative is to allow the Spanish banks to go into bankruptcy and restructure.

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"

Fitch Cuts Spain's Rating

Helluva a bailout they have going.

Fitch has lowered Spain's debt rating one step to AA+ and assigned it a “stable” outlook, according to a statement.

The Ten Billion Dollar Not So Sure Thing or More Problems for the Fake Bailout

Spain's Banco Bilbao Vizcaya Argentaria, or BBVA, has been unable to renew roughly $1 billion of short-term funding in the U.S. commercial-paper market since the beginning of the month, according to people familiar with the matter, says WSJ.

This is only the start of the problem. The bank also has other substantial European-based funding  and about $9 billion in U.S. commercial paper, according to WSJ.

No one knows how much of this  BBVA will be able to roll over. It's a ten billion dollar question.

You know something? This fake bailout, isn't going so well.

HOT: Merkel's Coalition Calls for 'Orderly Defaults'

The end is here.

German Chancellor Angela Merkel’s coalition stepped up calls for allowing the “orderly” default of euro-region member states burdened with debt to avoid a repeat of the Greek fiscal crisis, reports BW.

Floor leaders of the three coalition parties also agreed in Berlin today to put a resolution to parliament alongside the bill on Greek aid calling for the European Union to revise rules for the euro to put pressure on countries that run deficits.
 
Meanwhile, in Spain, where the problems of Greece look like pocket change, Spanish Prime Minister Jose Luis Rodriguez Zapatero told reporters in Brussels that speculation of a bailout for Spain is “complete madness.”

Greeks Riot in Advance of a Wednesday Strike

NYT has details:

Tens of thousands of demonstrators took to the streets across Greece on Saturday, including hundreds of black-clad youths who clashed with the police here, as Greeks vented their rage at tough new austerity measures aimed at securing aid and avoiding a debt default...Police estimated that 17,000 people protested in Athens. They said 10 people were arrested and reported no serious injuries..On Sunday, Prime Minister George Papandreou is expected to announce cost-cutting measures totaling 24 billion euros (about $32 billion) that will include freezing public-sector salaries, raising taxes and slashing pensions. In return, Greece is expected to receive up to 120 billion euros in aid over three years.

Keep in mind that this is only the first inning of what will be a long crisis. Along with the bailout money comes the higher taxes, pension cuts etc. of the IMF demanded "austerity programs." The Greeks view this , quite correctly, as their money being taken from them for the benefit of international banksters. That's what the riots are about, which adds an element of potential social breakdown. The Greeks aren't docile Icelanders. No one really knows how this will end up. No one.

As for the money, a bailout of 120 billion over the next three years for Greece will delay the Greek debt crisis for awhile, but that only means the money focus turns to Spain. Spain needs 179 billion euros, not over three years, but this year. And they know how to throw a pretty good riot, themselves. With 20% unemployment in Spain, they have a pretty decent ready made army sitting around doing nothing that can take on the government. Then there is the unknown quantity, Italy. Italians are big savers, so they have been absorbing a lot of the debt the Italian government has been kicking out, but this year that number will  balloon to 338 billion euros (87 billion via an increase in the deficit, the other maturing debt). No one knows how much the Italians are willing to absorb of that. In 2009, the deficit of the Italian state budget made up 5.3 percents while the debt of the country reached 1.761 trillion euro or 115.8 percents of GDP. Thus, we are talking at least a 5% increase in the debt of the country.

Bottom line the Greeks, Spaniards and Italians all no well what the Greek, Sophocles (496 -  06 BC, meant when he warned  in Ajax:

Foes' gifts are no gifts: profit bring they none.

The modern day translation would be something like:

IMF bailouts are no gifts; There will be profit for us none.
Indeed, they will end up taking, and that, oh woe, won't be fun.

Spain's Unemployment Rate Above 20%

Spain's National Statistics Institute said Friday that first-quarter unemployment rose to 20.05% from 18.83% in the fourth quarter of last year.

This is part of the problem that makes Spain the Big Daddy in the PIIGS crisis. Not only do they have huge debts coming due in July, but the economic wreck that Spain is means that there is nowhere to squeeze to help bring future deficits down.

The Greeks may not like it, and it certainly isn't right, but the government has room to squeeze and raise taxes , but how are you going to raise taxes on a country with 20% unemployment, and in the middle of a housing price collapse?

Spain Downgraded

S&P has just downgraded Spain debt from AA+ to AA, Outlook Negative.

While Greek Debt Stabilized on News Of Greece Seeking EU/IMF Aid...

...the five year Portuguese yields rose from 3.84% to 4.26%.  The five year Spanish bonds rose from 2.89% to 3.03%, and the five year Irish bonds rose from 3.74% to 3.97%.

Here's the problem as explained by Peter Boone and Simon Johnson:

When the problem was just Greece, the numbers were already large.  In our view, the Greek government needs 150bn euros over three years to be sure it can refinance itself through a recession.  The Portuguese will roughly need 100bn euros.  If those amounts were made available – will that support the confidence needed to buy Irish and Spanish bonds, or would it scare investors because the protests from Germany would be so large that it would be clear no more funds would be available in bailout mechanisms? 

Beyond this is the reality that none of the governments in these countries are going to do anything to cut spending. The political climate is just not there to do so. This means any money sent to these countries is simply a patch job. The spending won't stop and so the crises will re-emerge.

Greek Bonds Fall

From WSJ:

Speculation that a European Union aid package for Greece was in doubt pressured Greek government bond prices and drove up the cost of insuring the country's debt against default.

The market also dragged down prices of some of the euro-zone's other high yielders, including Spain and Portugal.

The moves were triggered when Greek Prime Minister George Papandreou asked the European Union to agree to standby loan agreements at its summit next week to back up Greek borrowing, saying Athens would rather get help from the EU than turn to the International Monetary Fund.

Keep in mind that Greece is only the opening act, wait for Spain to take center stage.

Europe of the Future: Germany Shrinks, France Grows, but UK Population Booms

Britain will overtake Germany and France to become the biggest country in the EU in 50 years' time, according to population projections unveiled yesterday. A survey of demographic trends by the EU finds Britain's positive birth rate contrasting strongly with most other large countries in Europe.

The survey predicts that Britain's population by 2060 will increase by 25% from the current figure of just over 61 million to almost 77 million.

Germany is the biggest country in the EU, with more than 82 million people, but it is likely to shed almost 12 million by 2060, says the report.

The French population will rise to almost 72 million by 2060.

Of the biggest six EU countries (Germany, France, Britain, Italy, Spain and Poland) Britain has by far the greatest birth rates. Only Luxembourg, Cyprus, and Ireland are growing faster than the UK.

The average age of Europeans is now just over 40; this will be 48 by 2060. The average age for Britons is 39 and will be 42 in 2060 - the lowest age in Europe with the exception of Luxembourg.

The EU's population now stands at 495 million and is projected to rise to more than 520 million by 2035, before falling to 505 million by 2060.

The strongly Roman Catholic countries of Europe are having fewer babies. The Italian population will stay the same over the next 50 years, while Poland's and Lithuania's will shrink considerably. Spain's population is forecast to increase by 6 million. Life expectancy is also rising. In Ireland, women will live to 89 and men to 85. Almost one in three Europeans will be of pensionable age if 65 remains the threshold.

Eurozone Economy Contracts For The First Time

The eurozone economy has contracted for the first time since the launch of the euro a decade ago.

Gross domestic product in the 15-country region fell by 0.2% in the second quarter, reported Eurostat, the European Union’s statistical office. That marked a sharp turnaround from the first three months of the year, when GDP expanded by 0.7%.

Eurozone inflation hit a record 4 % in July, which is holding back the ECB from cutting nterest rates.

Germany’s economy – Europe’s largest – contracted by 0.5% in the three months ended June.

Michael Glos, Germany's economics minister, said a weaker second quarter had been expected but Germany had improved “by a good measure” its international competitiveness and resistance to global shocks. Berlin stood by its forecast for overall German growth of 1.7 % this year, down from 2.5% in 2007.

France reported a significantly worse-than-expected 0.3% cent fall in second quarter GDP, after a 0.4% rise in the first three months of the year.

Christine Lagarde, the French finance minister, down played the possibility of a recession. There is “no question of a recession” with the fundamentals of the country’s economy remaining healthy, she said..

Spain saw a sharp deceleration in economic activity – although GDP growth remained positive, at 0.1% in the first quarter.

As in the United States, housing has been at the forefront of economic problems in Europe.

One of Spain's Largest Property Companies Files

One of Spain's largest property companies yesterday filed for creditor protection owing €5bn ($7.9bn), spurring a Madrid stock market sell-off. Martinsa-Fadesa said in a regulatory filing it had lodged a petition for court administration, marking the start of Spain's bankruptcy process.