Despite the world and their lemur believing that, with a self-referential
EUR100 billion bailout (loan) for its banks and a ponzi guarantee scheme for its
insolvent regions, all will be well and more debt fixes too much debt,
Spanish 10Y yields are back near 7% and spreads over 575bps.
The reason - simple - the backbone of their credit-fueled economic growth has
crumbled and is now crumbling faster. As the FT
reports today, Spain's housing and banking sectors continue to deteriorate,
grim new government data showed Wednesday, providing the latest indication that
the country's economy remains caught in a protracted recession. House
prices declined at the fastest pace since the start of the crisis in
the second quarter, the public ministry said, and bad loans increased
for a 14th month in a row, the Bank of Spain reported. What is more
worrisome is that in spite of a bank rescue plan (that is obviously tyet tto be
implemented), bank deposits saw a record decline shrinking 5.75% from a
year earlier. The vicious cycle of rising borrowing costs and continued
economic recession prompted the International Monetary Fund earlier this week to
predict that the downturn will last into next year. "This government can't decide between a good
and a bad choice," Mr. Rajoy said. "This government has to choose between the
bad and the even worse."
Since the EU Summit, and basically month-to-date, Spanish 10Y spreads are
100bps wider back near record wides...
Spanish House Prices are declining at a record pace...
and Spanish bad loans are rising at an extremely high pace and for 14 months
in a row...
Bloomberg Generic Price of the Spanish Government bond which
the market considers to be the benchmark issue - The price is an
average of at least three market maker bid-side quotes who have priced
the bond most recently - The generic price is updated on the hour
throughout the trading day - The closing price is at five o'clock local
time. Calc. type: Spain: Annual Yield. Day count: ACT/365 NON-EOM. The
rates are comprised of Generic Spanish government bonds. The underlying
benchmark bonds are located under {YCGT0061 DES} 2 for
"Members". These yields are based on the bid side of the market and are
updated intraday. To view all terms/securities type {ALLX GSPG}.
Pricing source for the bond: BGN. The generic will not update if we do
not have rates for the underlying benchmark bonds, or if we do not have
the underlying terms on the curve.
Summit full life: One week.
Literally. Last Friday morning speculation that Germany had "caved" to
Mario Monti, somehow allowing beggars to be choosers, and would allow an
unconditional and IMF-free rescue of Spain and Italy while the
seniority of the ESM was eliminated, sending the Spanish 10 Year yield
to under 6.2%. The same security is now back over 7%, where it was just
before the summit, as Finland and Holland (or half of Europe's AAA-rated
countries), and even Germany, made it quite clear, as we said all
along, that stripping seniority of a piece of debt is far more complex
than saying one wants to do it in a Memorandum of Understanding. The
other thing pushing Spanish spreads wider was German FinMin spokesman
Kotthaus saying that no decision on Spain can be taken on Monday as
there is no Troika report on Spain bank aid yet, and that the European
bailout activation, which was supposed to begin on July 9th, may be
delayed until July 20. At that point it will likely be delayed again,
only this time GSPGs may be trading wider than their lifetime highs of
7.285%. Finally, adding insult to Mario Monti "victory" is that Merkel's
popularity rating just hit a multi-year high. So: who was last week's
summit "winner" again?
And just in case there is any confusion about why the European Union is the biggest possible misnomer:
Finland would rather exit euro than pay for others: Jutta Urpilainen, Finance minister
HELSINKI: Finland would consider leaving the eurozone rather than
paying the debts of other countries in the currency bloc, Finnish
Finance Minister Jutta Urpilainen said in a newspaper interview on
Friday.
"Finland is committed to being a member of the eurozone, and we think
that the euro is useful for Finland," Urpilainen told financial daily
Kauppalehti, adding though that "Finland will not hang itself to the
euro at any cost and we are prepared for all scenarios."
The finance minister stressed that Finland, one of only a few EU
countries to still enjoy a triple-A credit rating, would not agree to an
integration model in which countries were collectively responsible for
member states' debts and risks.
She also insisted that a proposed banking union would not work if it were based on joint liability.
"Collective responsibility for other countries' debt, economics and
risks; this is not what we should be prepared for," Urpilainen said.
Urpilainen acknowledged in an interview with the Helsingin Sanomat
daily that Finland "represents a tough line" when it comes to the
eurozone bailouts.
"We are constructive and want to solve the crisis, but not on any terms," she said.
As part of its tough stance, Finland has said that it will begin
negotiations with Spain next week in order to obtain collateral in
exchange for taking part in a bailout for ailing Spanish banks.
Finland has also voiced concern about an agreement reached at an EU
summit in Brussels last week to use the European Stability Mechanism
(ESM) to buy bonds to ease the unbearable borrowing costs which are
squeezing Spain and other vulnerable eurozone economies.
And last year, Finland created a significant stumbling block for the
eurozone's second rescue package for Greece, agreeing to take part only
after striking a collateral deal with Athens in October 2011.
