Thread: Forget Middle East, Spain Is Still The Elephant In The EU

Guest Post: Forget The Middle East, Spain Is Still The Elephant In The European Room!

by Tyler Durden
03/03/2011 17:17 -0500

Forget the Middle East, Spain is still the elephant in the European room!

From Nico Pantelis of Smart Money Europe – http://www.smartmoney.eu

Now that the world is focused on the ongoing turbulence in the Middle East, Europe gets a rest from the financial hit men. While Europe ain’t the Middle East, there are lots of connections between the two continents.

Many countries within the European Union have citizens with Arabic roots and backgrounds, and the Islam is a second largest religion. And lets face it, a few hours in a jet airplane and most Europeans can enjoy the tropical climate of the Middle East region.

But there’s more, like the large trade and financial pacts between different Arabic and European nations. Take for instance the in ‘state-of-turmoil’ Libya, who holds large stakes in Italian blue-chip companies like banking giant UniCredit or defence company Finmeccanica. That makes Italy, already a EU member in financial chaos, a first potential victim of the unrest in the Middle East.

But if we dig deeper in the EU/Middle East web, then we see more potential trouble ahead. The immense trading hub between Morocco and France, or the Turkish ‘gateway’ for Eastern Europe. No wonder few pundits are sounding the alarm bells. But hey, that’s the world we live in nowadays, with everyday a potential to chaos.

If we take a step back, away from the heat, and have a look at the bigger picture for Europe, then the real problem and threat for Europe lies within Europe, namely Spain. Spain is for Europe what Florida is for the US: one gigantic foreclosure mess! And guess what, prices of Spanish homes are still dropping, just like oversees.

The latest official drop in house prices for Q1 ’11 was 3.5 percent, which is better – or less worse – then 6.5 pc drop of last year, but still dramatic for one of the largest EU countries, with gigantic debt loads in the property market.



And there is more where that came from! Mark Stucklin of Spanish Property Insights touts the official housing numbers:

“As a result, prices have now fallen 13.1pc peak-to-present, and by as much as 20pc in popular tourist destinations like Alicante province (Costa Blanca), home to a large stock of holiday-homes.

The problem with the Government’s data is it tends to understate price falls, which have been more like 30pc or more (peak-to-present) in coastal regions like the Costa Blanca and the Costa del sol.â€

Portugal, Which Has €20 Billion In Bond Maturity And Deficit Outflows In 2011, Has Only €4 Billion In Cash

by Tyler Durden
03/03/2011 15:01 -0500

It seems there is just one market which the Fed is either unable, or unwilling to manipulate: that of Portuguese (and generally peripheral European) debt. And for good reason. As the WSJ reports, Portugal started the year with about €4 billion in cash: "Fresh borrowing and other public transactions suggest Portugal has this year likely increased that number to around €4 billion. The official said in an email that the figure had risen but didn't elaborate." There is one small problem: the country has a €4 billion outflow on April 15... and has to pay down €20 billion worth of debt maturities and budget deficits through the end of this year! Where the country will get this money... nobody knows. Just BTFD. But not in Portuguese bonds. As the charts below show that is still the only asset that can't find a greater idiot.

Portuguese CDS:



From the WSJ:

Portugal's leaders have said repeatedly that they don't need a bailout, and that a program of economic reform and austerity the country has embarked upon will convince financial markets to lend it what it needs. Portugal has been able to issue both long- and short-term debt this year, albeit at high interest rates.

The relatively small amount of cash Portugal has on hand stands in contrast with Ireland, which has roughly similar borrowing needs this year. But Ireland had about €13 billion in cash in its main accounts heading into 2011, plus tens of billions more in a pension-reserve account that has acted as a rainy-day fund.

Still, Ireland's huge exposure to government-guaranteed banking liabilities forced it into a bailout last year. Greece, which took a bailout last spring, did so because it couldn't attract enough borrowing at reasonable rates to meet two large bond redemptions.

The following can hardly be described as prudent Treasury actions:

So far this year, Portugal has raised €5 billion from selling short-term Treasury bills and spent about €7 billion redeeming them.

But just like in the first week of January we expect Portugal's white knight (remember how two long months ago everyone thought Europe was about to implode...no?) will be China once again.

It wasn't immediately clear what Portugal has taken in through other vehicles, like retail savings bonds or private placements. Spokespersons for the Portuguese finance ministry didn't respond to repeated messages inquiring about the country's cash position.

And if China fails, Portugal can always come crawling with its "other vehicles" to the Fed. Ben would be more than happy to shower it with other taxpayers' money...

For those interested what Portugal's debt distribution looks like, here it is:



http://www.zerohedge.com/article/portug ... -billion-c