Crisis in the eurozone, who is the bad student?

The famous crisis is a never ending story that menaces with bankrupcy to many countries in the Eurozone. These countries have faced a huge depression in their home markets and a failure of the public administration to keep his solvency, forcing the European union to get in it and rescue those members in trouble so they don't fail and put in risk the Euro.

The famous men in black are forcing these governments to enjact unpopular policies to cut spending, which are creating a huge tension in countries like Greece. Take measures to arrange the different countries that have debt problems in order to make them solvent is absolutely necessary to keep Euro safe and to maintain the Eurozone competitive, but not only spending is the point to retail, earnings may also be revised and fiscal policies from countries that are solvent may be applied in failing countries. If a country cannot reach the european competitive standard, rescue and troika policies will be very harmful for the country and the best solution would be to quit the eurozone in order to rearrange the country internally without outside pressure.

We all know that globalization took us to the "crisis", financial speculation in the house market precipitated it and after some years countries realized that the key for going out this trap is being competitive in this globalized world. Debt is not a problem if a country is competitive and grow.

The spanish case special. Some areas of Spain are competitive, but the government doesn't care about developing a social-economic policy in order to boost productivity not only in the competitive areas but also in the rest of the country. The richest and more competitive region of Spain (Catalunya) feels that the rest of the country is just waiting  for them to pay the highest taxes of the country so they can receive their money and live over their possibilities. Meanwhile they don't make the necessary investments in the region in order to keep this competitive position in the world. This discrimination is giving wings to the nationalist party which wants the independence and if it occurs, the rest of Spain would face a situation worse than the Greek one.

Conclusion: The way out the crisis is productivity and countries that don't put as a first priority socio-economic necessities and don't solve their intern social tensions will be likely to default and won't have a position in this competitive world.

Spain’s leverage, uncontrolled growing?

Zapatero’s government was not a faithfull leverage keeper since they archieved the highest deficit in the story of Spain’s democracy by reaching the 8.5% of GDP in debt instead the 6.6% predicted for 2011. The new government received the adjustment from Brussels, which demanded to this new goverment to reduce his debt to a 4.4% of GDP for this year. 

Rajoy realized that reducing the debt from 8.5% to 4.4% in a situation in where the income of the country is reduced day to day due to the bad economic situation was somehow impossible to archieve. Hence Rajoy travelled to Brussels and discussed this objective by offering the possibility to reduce the defficit to 5.8%. After negotiating, they reached an agreement to reduce the defficit a 3.2%, going from 8.5% to 5.3% and to 3% in 2013.

In order to have a clear view of the Spain’s debt we need to analyze the economic situation of the country, which is problematic due to the increasing unemployment rate which is close to 23% of the active population, a rate which is still growing due to the economic problems which is facing the country. Rajoy is willing to archieve the 5.3% rate by reducing the public spending in many areas and by reducing the number of public companies. The objective is to stop the growing debt of Spain higher than the 70% of the GDP. This is the situation of Spain’s public debt. Private debt, which affects to the main  banks in Spain is an other story.


Daniel Villalongue

Rajoy’s hand: Any changes?

Since the 20 November when Mariano Rajoy was elected as Spain’s chairman and tryed to handle the increasing unneployment and economic difficulties. He and his team reacted by entrepreuning some measures such as the reform of the labor market, which is very significative. The Spanish labor market has an unemployment rate of 22.9% which is one of the highest in the whole Europe pushes Rajoy to take urgent measures to deal with it.

The measures taken pretend to flexibilize the labor market by reducing the cost of firing people, reducing the payroll of 44 days per year worked to 25 days and by increasing taxes to the highest incomes. These measures are in my opinion good and they are willing to make more changes in a short term, but the politic panorama is now stuck due to the autonomic elections which are taking place in most of the autonomic parliaments in Spain.

Personally I think the labor market  needs more changes in order to increase hirings. Now the cost of firing is reduced but employees still very expensive for companies because they hold the whole social security costs for the employees, which is a 30% of everyones salary every month and also state that the spanish minimum salary is one of the lowest in all the European union.

Finally state that there are other measures in other areas which can be taken and would be representative in order to reduce unemployment, an example is the reform of justice that Rajoy promised in the electoral campaign. 


Daniel Villalongue

The spanish banks: A new era?

20/2/2012

The spanish banking system is facing a dificult situation due to his high exposition to the inmobiliary crisis and to the international crisis.The calculations tell us that the spanish banks have 323.000 million euros in risk. From these, 175.000 millions are problematic assets. These are related to the construction market which due to his speculative trend of the last years the market is showing a high offer and low demand, crawling prices.

Spanish government is willing to react by increasing their provisions for risks by 50.000 million euros. These measures have the intention to dinamyze the banking market by pushing them to unify their business so they reduce the competition in the crowded spanish banking market and to ensure the banking business in Spain.

This measures are also pushed European Comunity is pressing the Spanish government so they go over this savings operation very smoothly and fast to reduce the hypothetic increase in the rate of national debt. They are also giving big importance to the reduction of the public deficit.

During 2011 we saw how some spanish banks unified, beeing the main example the creation of Bankia, but the situation and the government measures tells us that there are going to be more of them during this year, beeing the most likely to be participating in this kind of operations Unmin, Caixa Catalunya, Nova caixa Galicia and Banco de Valencia, which will be probably absorbed by bigger banks until 31 december 2012. After this, the banks should be in conditions face the decrease in the devaluation of their construction assets and to increase their flow of credit to Spanish companies which are struggling.

Finally Spain is facing a difficult challenge in 2012 due to his increasing unemployment large deficit eventhough the Spanish leverage is still correct.


Daniel Villalongue & Armand Villalongue