Last Call

Texas wanting to secede from the United States may be a running joke, but in Spain, nobody's laughing as that country's Catalonia region seems quite serious about declaring independence from the Spanish government.

Separatists in Spain's Catalonia won regional elections on Sunday but failed to get the resounding mandate they need to push convincingly for a referendum on independence.

Catalan President Artur Mas, who has implemented unpopular spending cuts in an economic crisis, had called an early election to test support for his new drive for independence for Catalonia, a wealthy region in northeastern Spain.

Voters handed almost two thirds of the 135-seat local parliament to four different Catalan separatist parties that all want to hold a referendum on secession from Spain.

But they punished the main separatist group, Mas's Convergence and Union alliance, or CiU, cutting back its seats to 50 from 62. That will make it difficult for Mas to lead a united drive to hold a referendum in defiance of the constitution and the central government in Madrid.

"Mas clearly made a mistake. He promoted a separatist agenda and the people have told him they want other people to carry out his agenda," said Jose Ignacio Torreblanca, head of the European Council on Foreign Relations' Madrid office.

For now, much like Quebec and Canada, the only thing keeping Catalonia in Spain is the fact the separatist parties have yet to unite the region under one party and leader.  Should that change, it would be the economic equivalent of not Texas, but California leaving the union here, a massive blow to Spain's already moribund economy.

We'll see how Spain reacts now that Mas and the separatists are, well, still separate.

All Hail The Job Creators

GOP mega-donor and billionaire casino tycoon Sheldon Adelson certainly has the money to be a job creator.  His next conquest in fact is a massive $35 billion casino project, practically a second Las Vegas by itself, that will create a whopping 250,000 jobs.  So which lucky state will get these badly needed American jobs from our job creating overlord?

Why, Spain, of course.

American billionaire, casino mogul and Republican donor Sheldon Adelson has a new project: a $35 billion gambling megacity in Europe. He has chosen debt-ridden Spain as the location for "EuroVegas," which is expected to bring up to 250,000 much-needed jobs.

But many Spaniards are divided over whether they want casinos in their backyard.

Adelson recently touched down in his private helicopter in the Madrid suburb of Alcorcon, where wind whips across empty lots and half-built apartment blocks. The area has been down on its luck since the housing collapse, and one-third of its residents are unemployed.

On this land, Adelson envisions a glittering gambling city, to rival Las Vegas — complete with 36,000 hotel rooms, 18,000 slot machines and three golf courses.

Unemployed residents like 28-year-old Ruben Alvarez say it's like a mirage in the desert — almost too good to be true.

"If it's true and they really bring 250,000 jobs here? Imagine that. Things would definitely improve here if people had work. It would let people breathe a sigh of relief," he says. "But we'll have to see if it's true."

Turning Madrid into Vegas?  Gosh, we should elect Republicans like Mitt Romney so we can make sure Adelson gets a nice fat tax cut as a reward so he can continue to create hundreds of thousands of jobs not in the United States.

And remember, with Mitt Romney warning us Wednesday that we'll end up like Spain if it's such an awful, bankrupt Socialist hellhole with no future and crushing taxes and a moribund economy (and America is super awesome and stuff) is anyone in the political press going to ask why Romney's biggest single donor about to invest in a $35 billion casino city smack in the middle of the capital of Madrid rather than in America?

Wouldn't hold your breath waiting on that particular answer.

The Pain In Spain Continues, Part 4

Spain's recession continues, and despite all the attention on the Obama/Romney fight, it remains that Spain could strain the European plains and cause a hell of a lot of problems should things fall apart over there between now and November.

Spain’s recession worsened in the second quarter as the government’s austerity push to reduce the euro area’s third-biggest budget deficit and a slump in consumer spending offset growth in exports.

Gross domestic product fell 0.4 percent from the previous quarter, when it declined 0.3 percent, the Madrid-based National Statistics Institute said today. That’s in line with an estimate published July 30. Separately, Spain’s borrowing costs fell to the lowest in three months at an auction today after the nation’s bonds rallied this month on optimism the European Central Bank will agree on a plan to help peripheral nations.

Prime Minister Mariano Rajoy last month gave up on his forecast for a return to growth in 2013 as he unveiled budget cuts that will expand austerity measures to a total of 15 percent of annual GDP by 2014. He is due to host European Union President Herman Van Rompuy today for the first in a series of meetings aimed at solving the nation’s funding issues.

“We fear that things are likely to get worse before they get better,” said Martin van Vliet, an economist at ING Bank in Amsterdam, who expects Spain will seek additional financial aid as early as next month. “With much more fiscal austerity in the pipeline and unemployment at astronomic highs, the risks are clearly tilted toward a more protracted recession.”

Yeah, gosh, protracted austerity is going to cause recession and massive unemployment for the next 18 months or so, awesome.  And that's if Spain's economy doesn't crash.  This is the good scenario.

And once again, keep in mind this is exactly what the GOP says they want to do to our economy:  balance the budget through steep cuts to social programs, government services, infrastructure programs, schools, public safety, highways and bridges, and civil service.  The equivalent of what Spain is doing here, cutting the budget by 15% of GDP by 2014, would equal eliminating about $2.4 trillion dollars from the budget here in America.  There would basically be no discretionary spending, period.  It would all go away.

Basically, Rajoy is doing what the GOP say they would do if they were in charge.  But here's the thing, they would actually make a lot of these cuts, and then make trillions in tax cuts for the rich in addition.  The tax cuts would far outweigh the spending cuts, and the deficit would skyrocket upwards.

Austerity is a proven failure.  The only thing worse is the GOP's fake austerity.

The Pain In Spain Continues, Part 3

Several more Spanish regional governments are now asking for bailout billions as Spain's problems continue to grow worse.

The Balearic Islands and Catalonia are among six Spanish regions that may ask for aid from the central government after Valencia sought a bailout, El Pais reported.

Castilla-La-Mancha, Murcia, the Canary Islands and possibly Andalusia are also having difficulty funding themselves and some of these regions are studying plans to tap the recently created emergency-loan fund that Valencia said it would use yesterday, the newspaper said, without citing anyone.

Spain created the 18 billion-euro ($23 billion) bailout mechanism last week to help cash-strapped regions even as its own access to financial markets narrows. 

And with Spanish 10-year bonds now well into the danger zone at 7.25% and climbing, the cost of that bailout is only going to get significantly worse.  Spain and California have about the same number of people (46 million) and close to the same GDP (California is about $2 trillion, Spain about $1.5 trillion.)  Imagine if 6 California counties, not cities but entire counties, declared bankruptcy and demanded bailout money?  That's where Spain is right now.

And yes, that should scare you.  If Spain goes down, Europe follows.

The Pain In Spain Continues, Part 2

The most recent Spanish austerity measures announced last week have now fomented major protests in the capital of Madrid as unemployed young Spaniards are descending on the the city in droves to rally against the Rajoy government.

Thousands of jobless Spaniards marched through Madrid Saturday in the latest angry demonstrations against economic crisis cuts, as fears rose for the country’s financial stability.

Young people thrown out of work by the recession converged on the capital, many of them having hiked hundreds of miles from around Spain, and walked through the city’s central avenues, waving banners and whistling.

“Hands up, this is a robbery!” they yelled, their regular refrain over recent days of protests. “Everyone get up and fight!”

It was the latest in a string of protests that have erupted since Prime Minister Mariano Rajoy announced 65 billion euros ($80 billion) in fresh austerity measures on July 11, including cuts to pay and unemployment benefits.

“I am very disappointed and angry,” said Alba Sanchez, 25, who had come by car from the northeastern region of Catalonia to join the demonstration.

“People cannot allow all these cuts by this government that hates us.”

The crowd marched peacefully to the sound of drums and trumpets and stopped at the Puerta del Sol square, the symbolic hub of numerous social protests, where demonstrators sat down and held a popular assembly.

On Thursday hundreds of thousands of demonstrators massed there after a mostly peaceful protest march that ended with police firing rubber bullets to disperse small groups of protestors.

Spain's population is only 46 million or so.  Protests involving hundreds of thousands would be the equivalent of a million plus here in the states.  Austerity there is failing, miserably.  The country's unemployment rate is almost 25% and things are only getting worse.

And when Spain goes down in flames, Europe will too.

Last Call

President Obama spoke at length from the close of this evening's G-20 summit in Los Cabos, Mexico and had quite a bit to say about the plan to tackle Europe's looming financial disaster.

President Obama said tonight that European leaders must quickly fix their ailing economies and banking systems in order to help boost world financial markets -- and create jobs in the United States.
"Slower growth in Europe means slower growth in American jobs," Obama told reporters after the G-20 summit it Los Cabos, Mexico.

He also acknowledged that the festering European problems could cost him the election -- but said that's not his immediate concern.

"If we're taking the right steps, if we're doing the right thing, then the politics will follow," Obama said.

After a two-day summit of the Group of 20 economic powers, Obama expressed confidence that Europe is "determined to move quickly on measures to promote growth and investment," which he said could help "provide confidence and break the fever."

"Our friends in Europe clearly grasp the seriousness of the situation and are moving forward with a heightened sense of urgency," the president said.

I'm glad that the Europeans are aware they are pretty close to the point of no return, but the reality is they've yet to do anything substantive to fix the Greek Fire, and time is now running critically short.  Spain's short-term borrowing costs have jumped to over 5% interest, and their 10-year bonds are at 7%.  They are in the danger zone and will not be able to keep this up for more than a few months at most at these levels, and that time decreases rapidly if rates keep rising.

Germany remains the key to any eurozone plans.  If they don't play ball, the game ends.  We'll see.

Greek Fire, Part 60

And we've reached the point where Spain has beaten Cyprus to the bailout window first as Madrid has asked the EU for something in the neighborhood of a hundred billion euros to solve their little bank implosion crisis.

Spain became the fourth euro member to seek a bailout since the start of the region’s debt crisis more than two years ago with a request for as much as 100 billion euros ($125 billion) to rescue its banks.

Prime Minister Mariano Rajoy, who as recently as May 28 said he wouldn’t seek a bailout, characterized the deal as a credit line for banks and an endorsement of his policies. He spoke to reporters today in Madrid before flying to Gdansk, Poland, for a soccer match between the national team and Italy.

Monday is going to be...ugly.  Ireland already wants to renegotiate its austerity-dependent bailout terms and Greece knows can push for that now too. 

If, as seems likely given the country’s size and therefore bargaining power, preferential terms are extended to the Spanish, the EU might find it has opened a Pandora’s box, beginning in Dublin.

A “European government source” told AFP that Ireland had highlighted “the need to ensure parity of the deal with Spain retroactively on its bailout".

AFP says a second European government source backs up this story. Apparently, Ireland intends to raise the issue during the next meeting of eurozone finance ministers on 21 June.

Ireland was known to be keen on renegotiating its bailout well before Spain agreed to request a loan, as a report in the Irish Examiner from June 5 suggests.

The even larger question is when Italy will follow Spain, considering everyone has been quietly propping up the Italians over the last five years, including the Spaniards.  When the Italians figure out they can now push for a deal like Spain got (and time would be of the essence in this case) it's going to get brutal.

And so, the Greek Fire has consumed Greece, Portugal and Ireland, and now Spain burns like a gasoline soaked torch in a napalm factory.  Four European countries down.  A whole lot of targets here could be next as the flames jump this latest Spanish firebreak, but if that next target is Rome as I suspect it will be,then the final act will be written.

We're into the beginning of the EU endgame now, folks.  Europe had its chance.  Spain's bailout means the last three years of half-measures, austerity, and musical chairs bank bailouts have now broken the back of the #5 economy in the region.  The difference with Spain is the size.  Greece is the #12 economy in Europe, Portugal #14, and Ireland #15.  Plenty of bigger countries that could help out with a bailout.  Not so with Spain.  The UK is #4.  Italy is #3.  When Italy goes, the game ends as they are too big for #2 France and #1 Germany to bail out by themselves.

So now we have not only a top 10 European country needing a bank bailout, but a top 5 one.  Now we're seeing the big boys fall.  And now things get deadly serious in Europe.

The Greek Fire now has taken a victim larger than the other three combined.  That's how bad this is, people.  Hold on to your crap.

The Pain In Spain Continues

The decay is starting to accelerate now in Spain's continued banking mess, with Bankia, Spain's biggest mortgage lender, now saying it needs almost 20 billion euros to stay afloat.

The government is trying to head off a collapse of the bank, which could threaten the Spanish banking industry and reverberate through the financial centers of Europe and beyond. The fear is that it will not have the money to save its banks, and their $1.25 trillion in deposits, and will need a rescue by the rest of Europe — even as political and financial leaders struggle to resolve Greece’s debt debacle. 

Bankia’s announcement came as Standard & Poor’s, the credit ratings agency, downgraded Bankia and two other banks, Banco Popular and Bankinter, to junk status and lowered the ratings of two other Spanish banks also staggered by mounting bad loans. A junk rating could make it even harder for Bankia to borrow its way out of trouble. 

The rising fear now is that the recent steady outflow of deposits from Spain’s banks, which are suffering from the bursting of Spain’s real estate bubble, to institutions outside the country could eventually turn into the sort of bank run that almost brought the financial world to its knees after the collapse of Lehman Brothers in 2008. 

Spain’s debt crisis is also playing out on another front. As its banks shudder, heavily indebted regional governments are also running out of money. On Friday, the government of the Catalonia region warned that it might no longer be able to finance its debts and called on the central government for help. While other regions have also sounded budget alarms, Catalonia is the biggest so far; it represents nearly one-fifth of Spain’s economy. 

The acceleration is beginning again, and it's starting to look like another bailout of Spanish banks will be needed just like Greece, Ireland, and Portugal got.   We'll see where it goes, but my guess is things will come to a head pretty soon in Europe.

The Kroog Versus The Biggest Bubble In History

Paul Krugman goes down to his local economist watering hole, bellies up to the fiduciary bar and orders two fingers of macroeconomic schadenfreude to pour on the floor in memory of the austerity-plagued euro.

The story so far: When the euro came into existence, there was a great wave of optimism in Europe — and that, it turned out, was the worst thing that could have happened. Money poured into Spain and other nations, which were now seen as safe investments; this flood of capital fueled huge housing bubbles and huge trade deficits. Then, with the financial crisis of 2008, the flood dried up, causing severe slumps in the very nations that had boomed before. 

At that point, Europe’s lack of political union became a severe liability. Florida and Spain both had housing bubbles, but when Florida’s bubble burst, retirees could still count on getting their Social Security and Medicare checks from Washington. Spain receives no comparable support. So the burst bubble turned into a fiscal crisis, too. 

Europe’s answer has been austerity: savage spending cuts in an attempt to reassure bond markets. Yet as any sensible economist could have told you (and we did, we did), these cuts deepened the depression in Europe’s troubled economies, which both further undermined investor confidence and led to growing political instability. 

And now comes the moment of truth. 

Indeed, the last two weeks have been rather unkind to the European markets.  Spanish bond spreads in particular are rather nasty.   Once again Krugman notes that the timeframe here for the collapse of the euro currency would be a half-life measured in months, not years.

So now what? Right now, Greece is experiencing what’s being called a “bank jog” — a somewhat slow-motion bank run, as more and more depositors pull out their cash in anticipation of a possible Greek exit from the euro. Europe’s central bank is, in effect, financing this bank run by lending Greece the necessary euros; if and (probably) when the central bank decides it can lend no more, Greece will be forced to abandon the euro and issue its own currency again. 

This demonstration that the euro is, in fact, reversible would lead, in turn, to runs on Spanish and Italian banks. Once again the European Central Bank would have to choose whether to provide open-ended financing; if it were to say no, the euro as a whole would blow up. 

Yet financing isn’t enough. Italy and, in particular, Spain must be offered hope — an economic environment in which they have some reasonable prospect of emerging from austerity and depression. Realistically, the only way to provide such an environment would be for the central bank to drop its obsession with price stability, to accept and indeed encourage several years of 3 percent or 4 percent inflation in Europe (and more than that in Germany). 

Both the central bankers and the Germans hate this idea, but it’s the only plausible way the euro might be saved. For the past two-and-a-half years, European leaders have responded to crisis with half-measures that buy time, yet they have made no use of that time. Now time has run out. 

So eternal financing by the ECB is unsustainable.  And serious price inflation in Germany where the Merkel government is already in trouble?  Also not happening.  That leaves the whole "euro blowing up" thing.  I keep saying this is the biggest threat to President Obama's re-election, not Mitt Romney.  If the euro goes completely pear-shaped and takes the US with it, we're going to end up neck deep in austerity crazed Republicans and we'll get this same mess in Europe now all over again a year or two down the road here.

It's enough to drive a man to drink.

The Pain In Spain, Again

Tens of thousands protested this weekend against Spanish austerity measures as the anniversary of Spain's May 15th movement grows closer.

Chanting "they don't represent us," tens of thousands in Madrid railed early Sunday against Spain's government and austerity cuts -- venting their anger on the first anniversary of the so-called May 15 protest movement.

Many ignored a government deadline to disperse by Saturday night from the central Puerta del Sol plaza, prompting police to clear the square by 5 a.m. on Sunday (11 p.m. on Saturday ET), the interior ministry said.

About 30,000 attended the Madrid protest, and 18 were detained for resisting arrest or disorderly conduct, the ministry said.

In the early hours of Sunday morning, demonstrators were a loud and vibrant presence in the square -- as a large number of police, stationed at a nearby government building and along side streets, looked on and let them be.

Throngs of like-minded demonstrators also gathered over the weekend in Barcelona and about 80 other cities around Spain.

Barcelona saw about 22,000 protesters, while Valencia had 8,000 and Seville had 2,000, authorities said. All the demonstrations were cleared by Sunday morning, the interior ministry said.

The coordinated events marked the return of the "indignados" -- or the outraged, as the protesters became known -- who led Europe's first serious and significant grassroots movement against austerity and government budget cuts.

The indignados certainly made their voices heard and will continue to do so.  But with Spain's unemployment rate reaching 25% and and the austerity cuts only making that worse, it's just a matter of time before the bond market comes knocking, and Spain will become the latest eurozone country to need a bailout.

How will the eurozone react with France and Greece, too?  We're about to find out.  If there's one thing that could hand the United States over to the GOP, it's a European collapse that drops America back into recession territory.

We'll see.

Last Call

You should be worried about Spain.  Their economic plan is exactly what Republicans here in the US are calling for:  slashing thousands of government jobs and regulations and cutting spending on social programs "we can no longer afford".  Spain's austerity plan continues with the next step in an economy with 25% unemployment being raising taxes on the middle class.  Sound familiar?

Spain is executing the House GOP budget step by step.

Figures released by the Spanish government on Friday show that country with an unemployment rate of 24.4%, the highest in Europe, and a rate of over 50% among 16-24 year olds.

But despite the bad economic news, that country’s leadership appears determined to stick with the austerity program it has pursued for the last two years and has even recently announcing an increase in consumer taxes for next year.

According to the San Francisco Chronicle, “Prime Minister Mariano Rajoy passed a plan in February to make it cheaper for employers to let workers go while raising taxes and cutting spending including health care and education.”

As explained by The New York Times, the Spanish government’s hope has been that even if growth and jobs suffer from draconian budget cuts, the lower interest rates that result will keep bond investors happy. But instead, foreign capital has been fleeing the country.

Standard & Poor’s just downgraded Spanish bonds by two notches, confirming a sense among investors that “it will be nearly impossible for Spain to meet its current deficit-lowering target amid one of the most severe recessions in the euro zone.”

So no, austerity is causing investors to pull their money out because they know that if the government is cutting spending with 25% unemployment, Spain's economy will descend into a death spiral.  Foreign investors know that with nobody in Spain able to buy their products any longer, there's no point in investing in the country when the economy is shrinking.

That should be the job of the spender of last resort, Spain's government.  Instead they are cutting government jobs, spending on social program,education and healthcare, and axing business regulations, exactly what the Republicans here say we must do now.

It's failing miserably.  But Republicans will do it here anyway if you vote for them.  Period.

Your call, America.

Greek Fire, Part 55

Meanwhile, European fears involving the Pain in Spain as the Greek Fire makes tapas out of the country's economy are beginning to take a toll on the US markets.  Dow's closed down 350 points in the last two days.

Spanish bonds tumbled as Economy Minister Luis de Guindos declined to rule out a rescue for the nation as 10 billion euros ($13 billion) of additional budget cuts failed to alleviate investor concerns. Analysts project that profits at non- financial S&P 500 companies grew last quarter at the slowest rate since 2009 as companies from McDonald’s Corp. to 3M Co. saw gains in the world’s largest economy eroded by a slump in Europe.

“The surge in Spanish yields puts the European debt crisis back on U.S. investors’ radar screens, front and center,” Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., said in an e-mail today. Last week’s lower-than-forecast growth in U.S. payrolls “has eroded investor confidence about America’s self-sustaining ability to overcome headwinds from Europe.” 

More than even Mitt Romney, Europe's crumbling economy may be the President's biggest foe this fall.

The slump in Spanish bonds drove the difference in yield, or spread, with German 10-year bunds, the region’s benchmark government securities, to 4.33 percentage points, the most since November. The Italian 10-year yield rose 23 basis points to 5.69 percent, sending the spread over bunds to 4.04 percentage points, the most since Jan. 31 on a closing basis.

Spanish Prime Minister Mariano Rajoy yesterday unexpectedly announced a 10 billion-euro package of budget cuts in education and health, less than two weeks after unveiling the most austere budget in more than three decades. Rajoy is targeting basic public services for the first time since his election in December in a bid to convince investors he can bring order to the nation’s finances.

Bank of Spain Governor Miguel Angel Fernandez Ordonez said the nation’s lenders may need additional capital if the economy weakens more than expected. 

And where, pray tell, does this capital come from?  Stay tuned as the Greek Fire continues to burn, baby, burn...