More pain in Spain as jobless increase

With the economically vital tourist season coming to a close and the country sliding further into double-dip recession, Spain's dole queues are likely to get longer over the coming months.

Increased unemployment benefit payments are already putting pressure on Rajoy's budget, with figures released this week showing a 5% increase for the first seven months of the year. The budget minister, Cristobal Montoro, had predicted that benefit payments, which fall over time for the long-term unemployed, would come down by 5% this year.

The miscalculation may add several billion euros to the budget deficit, ramping up pressure on Rajoy as the recession hits tax income, borrowing costs soar and big-spending regional governments struggle to finance themselves and reduce their own deficits.

With the markets on tenterhooks before Thursday's meeting of the European Central Bank, the bad news from Spain compounded a decision by Moody's ratings agency to place the entire European Union on negative outlook, citing the mounting strain of the crisis on key countries such as Germany, France and the United Kingdom.

The UK's FTSE 100 closed down 1.5% at 5672.01, Germany's DAX lost 1.2% to 6932.58 and France's CAC 40 dropped 1.6%. The Dow Jones industrial average on Wall Street dropped 0.6% as the key ISM manufacturing index showed the sector continuing to shrink last month.

Analysts increasingly believe that Spain, which has already been given up to €100-billion of eurozone money to rescue its banks, will be forced into seeking a full bailout.

Bailout facility
Jens Nordvig, a forex strategist at Nomura, said capital flight from Spain was an indicator that the country was on the path to bailout. About €98-billion left in May and June alone. "The scale of capital flight over the last few months in Spain supports this view," Nordvig wrote in a note to clients quoted by CNBC, adding that capital flight from Spain was now worse than from Indonesia during the 1990s crisis in Asia.

Spanish banks will start tapping a €100-billion bailout facility in coming weeks as they struggle with a vast pile of toxic real estate assets left over from a property bubble that exploded four years ago. Four Spanish banks, including the fourth biggest, BFA/Bankia, have been part nationalised after being overwhelmed by the bad loans they gave to real estate developers.

Bankia needed a further €4.5-billion emergency injection of capital from Spain's state FROB rescue fund on Monday as it prepared itself for the eurozone bailout.

In the first half of this year alone the four nationalised banks increased the amount of toxic real estate assets on their books from €56-billion to €71-billion as loans continued to sour, according to a study of their accounts by El Pais newspaper.

Bankia admitted to €3-billion (or 10%) more in loans to developers than it did six months ago. This was not because it had started lending again, but because these loans had only recently been reclassified at the former savings banks, which came together to form Bankia.

Bankia and the other nationalised banks – Catalunya Banc, NCG Banco/Novagalicia and Banco de Valencia – are due to offload their toxic real estate on to a new "bad bank" that will be set up by the end of November as part of the eurozone rescue deal. The bad bank will have up to 15 years to sell them and try to make a profit.

About €28-billion worth of property has already been foreclosed by these banks, meaning they now own it, with almost half of that building land in a country that already has 600 000 unsold residential properties. – © Guardian News & Media 2012

We make it make sense

If this story helped you navigate your world, subscribe to the M&G today for just R30 for the first three months

Subscribers get access to all our best journalism, subscriber-only newsletters, events and a weekly cryptic crossword.”

Related stories

WELCOME TO YOUR M&G

Already a subscriber? Sign in here

Advertising

Latest stories

OPINION| New UK work visa to exclude graduates from Africa

If graduates did not get their qualifications from the list of top 50 universities, 40 of which are in the US, France, China, Hong Kong, Australia, Germany, Canada and Japan, they will be excluded

Hackers infiltrate SA illicit financial flows conference with porn clip

The conference was attended by state agencies, blue- chip global and local non-governmental agencies and public accountability experts

OPINION| South African audiences want more authentic and accurate diversity...

The media has the power to shape perceptions, so television shows and movies can help shape a positive view of people who feel stereotyped

Interdict threat over new Tendele coal mine in KwaZulu-Natal

Tendele Coal plans to open a new mine despite a court ruling that the licence was unlawfully granted
Advertising

press releases

Loading latest Press Releases…
×