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The Central Bank of Spain Takes Part in the Management of Several Banking Entities
Libertad Digital ^ | 19 February 2008 | Libertad Digital

Posted on 2/19/2008, 1:42:14 PM by J Aguilar

In Their Credit and Participations Policy

The [Central] Bank of Spain Takes Part in the Management of Several Banking Entities Fearing the Crisis

Before the lack of liquidity that Spanish banking entities [state-owned “cajas” and private “banks”] find in the international markets, the Bank of Spain has taken a step beyond the habitual plans of inspection and has created committees of coordination in some Spanish “cajas” and banks with the purpose of co-managing the credit investments of greater risk […]. The leader of the PP, Mariano Rajoy, has asked explanations to the governor of the Bank of Spain.

[…]

Lack of Liquidity and Dilatoriness

According to [the newspaper] Negocio, the regulator has made this decision before the lack of liquidity that the Spanish entities face in the international markets, since the 30 percent of the foreign injections have ceased completely. To this, it is necessary to add that the increasing tendency of the dilatoriness has grown sharply in the last months, and according to the own data of the Bank of Spain, already reached 0.837 percent in December, a 30 percent more than a year before. Whereas, the described credits as "doubtful collection" have increased a 50 percent. Some financial groups have granted during the last years a great number of credits, as much to [real estate] promoters as mortages, reason why the risk contracted with the construction sector is elevated, especially in moment of smaller growth of this activity. In addition, several financial entities have taken shares participation in some real estate societies that are living a delicate period and whose shares have reduced importantly their value.

[…]

Negocio assures that certain circles maintain that the orders from Moncloa [the government] are clear: president Jose Luis Rodriguez Zapatero does not want any bankruptcy problem before the National Elections of March 9th.


TOPICS: Extended News; Foreign Affairs
KEYWORDS: mortagecrisis; socialism; spain
The construction business in Spain is linked to oligarchies and the funding of political parties. The "cajas" and smaller banks act as a hinge between politicians and businessmen, now it seems the times of joy are gone, although Zapatero and Friends are doing their best to avoid the average Spaniards noticing it before the Elections.
1 posted on 2/19/2008, 1:42:17 PM by J Aguilar
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To: bruinbirdman; Travis McGee

Ping!


2 posted on 2/19/2008, 1:44:32 PM by J Aguilar (Veritas vos liberabit)
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To: J Aguilar
The Euro's days are numbered?

Spain and Italy threaten EMU (European Monetary Union) stability The Telegraph 1/8/08 Ambrose Evans-Pritchard

"[A] decade of lagging performance across southern Europe has left the region unable to compete with the eurozone's northern tier. A property boom fuelled by low real interest rates has disguised the slippage until now, but only at the cost of storing up greater trouble. . . "The politicians in Italy and Spain do not seem to realise how deep-rooted their problems are. . . . They may have to cut real wages, and this could be unpleasant," said Mr Redeker. 'These countries will want higher inflation in Germany to get them off the hook, but I doubt Germany is ready to do that. This is going to create friction within the eurozone. Euro weakness will be the inevitable result.' . . the eurozone's one-size-fits-all monetary system is fundamentally unstable . . .'Generally speaking, currency unions have been temporary if not followed by political integration . . .'"

3 posted on 2/19/2008, 3:02:51 PM by WilliamofCarmichael (If modern America's Man on Horseback is out there, Get on the damn horse already!)
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To: WilliamofCarmichael
The politicians in Italy and Spain do not seem to realise how deep-rooted their problems are. . . .

????

They may have to cut real wages, and this could be unpleasant," said Mr Redeker.

????? Spanish low wages are not the question indeed.

'These countries will want higher inflation in Germany to get them off the hook, but I doubt Germany is ready to do that. This is going to create friction within the eurozone. Euro weakness will be the inevitable result.' . .

????? Friction? How does friction affect the economy?

the eurozone's one-size-fits-all monetary system is fundamentally unstable . . .

Far less that the previous European Monetary System.

Generally speaking, currency unions have been temporary if not followed by political integration . . .

Well, more and more countries keep joining the Euro. That is a fact.

Please, not use any article as an echo chamber for slogans.

Use your mind.
4 posted on 2/19/2008, 4:17:23 PM by J Aguilar (Veritas vos liberabit)
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To: WilliamofCarmichael
In countries like the Europeans, whose economy is based in buying raw materials and transforming them into finished products, a hard currency means stability in prices and salaries and efforts to increase the productivity. That means that you might earn a few euros, but the few euros you earn never lose their value.

A hard currency in this case benefits, before anyone else, the modest worker.

However, in the old days Mr. Redeker seems to miss, weak currencies suffered constant devaluations, which meant a loss of real value and an increasing of prices, due to increase in costs of raw materials.

Workers, even earning the same nominal salary, were poorer. Savings were pointless: in the long term devaluations will destroy any profit.

Finally, oligarchs could continue their business without trying to improve productivity. Their puppets the politicians would always come with a devaluation when needed.

5 posted on 2/19/2008, 4:34:49 PM by J Aguilar (Veritas vos liberabit)
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To: J Aguilar
Thank you for your response.

RE: "Please, not use any article as an echo chamber for slogans. Use your mind."

Echoes of slogans? Use my mind? You mean I should restrict my posts to just my opinions? Where would that get us? Besides it is not my wont to make replies without the means to source them.

First, Mr. Ambrose Evans-Pritchard is a highly respected journalist. The excerpts from his article describe some of the emerging problems for the EMU.

Second, I am unconditionally committed to references and sources -- I want proof and I try to provide proof, not personal opinions, to the extent practical. IMO it's a reasonably good way to avoid sinking into exchanges of taunts and contumely. If I fail to include a reference to verify my "opinion" I encourage everyone to ask for the reference.

It is not my intention to criticize Spain.

My wife is from Spain and she spends a lot of time there. I want to see the Euro - Dollar more in balance -- and, though the Euro is a very long way from replacing the Dollar as the World's reserve currency, I do not want that to ever happen. No other currency is even in the running.

Frankly I had difficulty understanding the translation in the posted article which is addressing Spanish monetary policy requirements.

Can Spain or any EU member have a monetary policy independent of the EMU and the European Central Bank? It seems to me that this is a problem facing the EMU for the first time.

I posted a source that addresses sovereign countries' monetary policies vis-a-vis the European Monetary Union. My hope is to elicit the current thinking about Euro v. Dollar from people with far more verifiable knowledge than I have.

From what I have read "full capital mobility and exchange rate fixity remove the ability to conduct an independent monetary policy."

How will this affect the Euro now that the EMU is facing its first serious challenge? How will the sovereign countries' fiscal policies affect the EMU? Can the EMU survive without the EU becoming one nation?

IOW, will the Euro survive with the EU as is. The Euro has done well these first few years during the good economic times but now that there are economic problems how will it do? There are deep-rooted problems that go beyond a downturn; is the EMU equipped to handle those problems?

RE: "Spanish low wages are not the question indeed."

It's not that Spanish wages are low it's the opposite. Wages may be too high. Spain may have to lower wages to gain competitiveness with Germany to correct Her trade imbalance and to sustain a growing economy now that the real estate / construction booms have ended.

Germany entered EMU with an overvalued exchange rate, but it has regained competitiveness through a process that used to be called ‘competitive deflation’, i.e. extracting continuous concessions from trade unions on labour costs.

As I understand it Germany over the past few years has lowered labor costs and was much less dependent upon the real estate / construction booms.

Now that those booms in Spain are over Spain needs to become more competitive by reducing the cost of producing goods and services to sustain a growing economy. There is no peseta-deutsche mark exchange rate to adjust the differences; the obvious adjustment mechanism is the wages of Spanish workers.

RE: "Friction? How does friction affect the economy? "

The friction is between countries as one EMU member may require a monetary policy that does not suit another EMU member; e.g., Germany fearing inflation wants higher interest rates and Spain with liquidity and available-credit problems needs to spur the economy with more cash and low interest rates.

Thus, the eurozone's one-size-fits-all monetary system is fundamentally unstable because one reason is citizens of one country are not going to take kindly to suffering to benefit another country.

RE: Far less that the previous European Monetary System (the one-size-fits-all monetary system of the EMU is more stable)

Now that the good economic times have passed, it remains to be seen if the EMU is better -- and that is the question.

RE: "Well, more and more countries keep joining the Euro. That is a fact."

Yes, I believe that initially there were eleven EMU countries and now there are more. The question is, after a good start, how will the EMU perform now that it faces its first big challenge as the economies cool down?

In Reply #5

RE: "weak currencies suffered constant devaluations"

As in the exchange rate? For example, the Dollar v. the Euro. Actually, our exports benefit. I've not included any sources for that fact, but it is a fact.

Living in America I've not experienced anything related to the dollar's weakness v. the Euro -- except as noted above where my wife has to buy Euros with dollars!

If America also had the Euro there would be no exchange necessary. So how to make our American-made goods and services (of equal quality) competitive with the less expensive goods and services produced in Germany, for example? We'd have to cut costs of production and the easiest way is to cut wages -- likely by corporations hiring more and more migrant labor from Mexico. I believe that and it's based upon various news articles and papers that I've read. Sources upon request.

This is a very long post and I am not trying to turn this into a "contest of endurance."

My primary concern is, what is the educated opinion about the future of the Euro v. the Dollar? the EMU future?

6 posted on 2/19/2008, 11:31:39 PM by WilliamofCarmichael (If modern America's Man on Horseback is out there, Get on the damn horse already!)
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To: WilliamofCarmichael
I posted a source that addresses sovereign countries' monetary policies vis-a-vis the European Monetary Union.

Countries in the Euro zone have no longer independent monetary policy, which, by the way, it is a big improvement: States as Italy and Spain are not in charge of the bill printing machine.

How will this affect the Euro now that the EMU is facing its first serious challenge?

Spain and Italy are just a fraction of the Euro zone. I think the Euro will affect them, not the contrary.

How will the sovereign countries' fiscal policies affect the EMU?

That is not the problem of Spain, where taxes are lower. BTW, inside Spain, regional governments also set taxes, therefore there is a difference in fiscal policies. Up to now, that has meant that business move to regions were taxes are lower, triggering efforts to reduce them in regions where they are higher. The same happens in the States, I guess that is why Ted Kennedy's state is named Taxachussets, isn't it?

There are deep-rooted problems that go beyond a downturn; is the EMU equipped to handle those problems?

Better than a State that has a weak currency among other European countries with hard one's. If the Euro hadn't existed, on 9/11 weak European currencies would have been devaluated simply because investors would have taken positions on safer ones. However, the Euro granted stability for all businesses that operate in Europe.

As I understand it Germany over the past few years has lowered labor costs and was much less dependent upon the real estate / construction booms.

Now that those booms in Spain are over Spain needs to become more competitive by reducing the cost of producing goods and services to sustain a growing economy. There is no peseta-deutsche mark exchange rate to adjust the differences; the obvious adjustment mechanism is the wages of Spanish worker


oh, the "obvious adjustment" are wages. And wages can be adjusted through devaluation, isn't it?

Developed countries "adjust" productivity, you earn the same producing more. No need of devaluation.

The friction is between countries as one EMU member may require a monetary policy that does not suit another EMU member; e.g., Germany fearing inflation wants higher interest rates and Spain with liquidity and available-credit problems needs to spur the economy with more cash and low interest rates.

It is just the contrary. Germany, with a far productive economy, wants lower interest rates; and Spain, with an inflationary one, needs them higher. The same happens among the regions of a single country.

Thus, the eurozone's one-size-fits-all monetary system is fundamentally unstable because one reason is citizens of one country are not going to take kindly to suffering to benefit another country.

Again, you leave all in the hands of the monetary policy. Spain has a traditionally inflationary economy because State regulations and poor business culture of increasing the productivity. And again, you see it from a binary point of view: 0 or 1. Check that the same European may suffer in some issues from having the Euro and in others it will be good for him. Maybe my country has had too low interest rates for too much time, but I've taking profit of having a hard currency in my pocket or my savings, new investment opportunities, etc.

Now that the good economic times have passed, it remains to be seen if the EMU is better -- and that is the question.

Good economic times? For Ireland and Spain, the rest of the Euro zone is stagnated!

As in the exchange rate? For example, the Dollar v. the Euro. Actually, our exports benefit. I've not included any sources for that fact, but it is a fact.

Poor argument. The dollar is not a weak currency, the United States are not a country whose industry is based in transforming raw materials bought abroad. Moreover, the dollar is the reference currency, so devaluating it has not the same effect.

If America also had the Euro there would be no exchange necessary. So how to make our American-made goods and services (of equal quality) competitive with the less expensive goods and services produced in Germany, for example? We'd have to cut costs of production and the easiest way is to cut wages -- likely by corporations hiring more and more migrant labor from Mexico.

I think a professor from Harvard wrote a book about that: The Competitive Advantage of Nations

Productivity is much more than labour costs. BTW, even taking into account that the US is a big oil producer, how is it going the pain at the pump?
7 posted on 2/20/2008, 8:02:28 AM by J Aguilar (Veritas vos liberabit)
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To: J Aguilar
Thank you very much for your thoughtful and informative responses! They have been very helpful.

RE: even taking into account that the US is a big oil producer, how is it going the pain at the pump?

It's painful! But so far the impact appears to have little affect on gasoline usage - - but people have less money to spend elsewhere. The effect is felt there.

We have oil. Oil, oil everywhere. The problem is the environ-wackos limit the drilling and refining. I know that that sounds too simple but it's true. Even before Al Gore, the moron, started his lucrative sophistry the environ-wackos had become far too influential. Their days are numbered, opinion polls indicate that there is a price-per-gallon threshold beyond which there will be hell to pay. I can't wait for it!

Thanks again.

8 posted on 2/20/2008, 12:36:45 PM by WilliamofCarmichael (If modern America's Man on Horseback is out there, Get on the damn horse already!)
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To: WilliamofCarmichael

You can imagine in a small country with no oil, no raw materials, everything imported: a devaluation is just brutal.

You are welcome.


9 posted on 2/20/2008, 10:14:07 PM by J Aguilar (Veritas vos liberabit)
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