Spain - Worse than Greece?

So Japan initiated the practice of creating zombie banks, and we saw this practice in action again in 2008, so how is this going to move on into the future? Spain is encountering it's own problems, and Santander kind of screwed depositors in 2008, but what's the future going to be?

Is the future of commercial banking in Europe going to be this sort of zombie bank phenomenon that has gripped Japan for the past 20 years? Or are the bailouts going to save everyone?

From Spanish Banks Find New Source of Capital Comes With New Kind of Risk

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Comments (22)

Apr 6, 2012 - 2:41am

All I know is that the Eurozone is a complete shitshow and is a warmup act for what we will go through here in a couple of years. The problems in Euroland are not going to be fixed any time soon (Or ever), but the Euro will not collapse. Both the US and China have too much of a vested interest in keeping the Euro strong. Obama, Bernanke, and Geithner are out to trash to dollar and can't afford the type of appreciation that would come with a Euro collapse. The the EURUSD holding strong around 1.31 is the primary reason we haven't seen QE3 yet.

Apr 6, 2012 - 3:14am
JeffSkilling:
All I know is that the Eurozone is a complete shitshow and is a warmup act for what we will go through here in a couple of years. The problems in Euroland are not going to be fixed any time soon (Or ever), but the Euro will not collapse. Both the US and China have too much of a vested interest in keeping the Euro strong. Obama, Bernanke, and Geithner are out to trash to dollar and can't afford the type of appreciation that would come with a Euro collapse. The the EURUSD holding strong around 1.31 is the primary reason we haven't seen QE3 yet.

How is it a weak dollar/euro exchange rate helps us?

Learn to LOVE Trump in less than 3 minutes
Apr 6, 2012 - 3:18am
<span><a href=http://tinyurl.com/3zap9yh rel=nofollow>John Rolfe</a></span>:
JeffSkilling:
All I know is that the Eurozone is a complete shitshow and is a warmup act for what we will go through here in a couple of years. The problems in Euroland are not going to be fixed any time soon (Or ever), but the Euro will not collapse. Both the US and China have too much of a vested interest in keeping the Euro strong. Obama, Bernanke, and Geithner are out to trash to dollar and can't afford the type of appreciation that would come with a Euro collapse. The the EURUSD holding strong around 1.31 is the primary reason we haven't seen QE3 yet.

How is it a weak dollar/euro exchange rate helps us?


They can afforded to buy our shit.
Apr 6, 2012 - 5:09am
<span><a href=http://tinyurl.com/3zap9yh rel=nofollow>John Rolfe</a></span>:
JeffSkilling:
All I know is that the Eurozone is a complete shitshow and is a warmup act for what we will go through here in a couple of years. The problems in Euroland are not going to be fixed any time soon (Or ever), but the Euro will not collapse. Both the US and China have too much of a vested interest in keeping the Euro strong. Obama, Bernanke, and Geithner are out to trash to dollar and can't afford the type of appreciation that would come with a Euro collapse. The the EURUSD holding strong around 1.31 is the primary reason we haven't seen QE3 yet.

How is it a weak dollar/euro exchange rate helps us?

Weak dollar boosts net exports (GDP = C + I + G +NX). But it's a fallacy that currency devaluation is always beneficial to an economy. Devaluation can lead to high inflation, higher input costs, and most importantly in our case when your economy is built on a house of cards that wholly depends on issuing the world's reserve currency, trashing your currency could lead to a global repudiation of your credit.

Mar 19, 2021 - 5:17pm

I am not so sure about it. The thing is that Spain today becomes more and more popular all over the world because of its tradition and mild climate. It is not a secret, that move here is a really big problem. Exception is only if you work with the reliable company one. But it worth moving here, because of the cultural and economic conditions for the people life.

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Apr 6, 2012 - 5:58pm
eriginal:
Haha PROPS to dmackorth for breaking down the necessity of our trade deficit and JeffSkilling for over-complicating it again. This is why no one understands finance.

The necessity of our trade deficit?

Apr 6, 2012 - 1:34pm

The big question I have is how those banks can get away with telling depositors, "Ya you know that cash you deposited in your checking account? Well tough shit he's some stock that is currently dropping in value, like a mink coat at a PETA rally."

And since they started out in 2008 nudging depositors to take equity instead of deposits, much as they are beginning to do today, then forcing them later on in the crisis. What are the chances that there will be a retail bank run? How much faith can you have in a banking system in which the central bank allowed depositors to be fucked like that back then, and a trend right now heading in the same direction, all to maintain a sustainable capital ratio?

I am also wondering if these trouble banks are playing the parking game with their assets before their quarterly and annual reports are coming out. It seems to me that things are likely worse than they appear to be.

Also, I still don't understand why there is so much concern over Italy. Yes, they have a large debt-GDP ratio, but the cost of servicing their debt is around 7% of GDP, vs US is around 23% of GDP, and they have much higher tax revenue, 43% of GDP vs. US 24% of GDP. Short of systemic collapse in Europe or a very significant increase in debt yields, they don't really look all that bad. The only thing that would concern me is how much the people themselves dislike taxes.

Apr 6, 2012 - 2:08pm
tiger90:

Also, I still don't understand why there is so much concern over Italy. Yes, they have a large debt-GDP ratio, but the cost of servicing their debt is around 7% of GDP, vs US is around 23% of GDP, and they have much higher tax revenue, 43% of GDP vs. US 24% of GDP. Short of systemic collapse in Europe or a very significant increase in debt yields, they don't really look all that bad. The only thing that would concern me is how much the people themselves dislike taxes.

I think Italy is just as scary, or even worse than Spain. Their debt is much higher than Spain and their interest rates are higher. Spain's gov't also seems to be pushing austerity measures and other reforms much faster than other troubled countries.
Regarding your points-- Italy's high tax revenue is actually a bad thing. It means that their citizens are already taxed out of their ass, leaving little room for tax hikes to reduce the deficit. If you're familiar with the Laffer Curve, you'll realize that a subsequent increase in taxes will be much less beneficial for Italy than for the U.S. (and it will reduce incentives to work much more). The fact that they are collecting so much money just means that their spending is that ridiculously out of control (since they still have a massive deficit).
I agree that the US debt situation is underratedly dangerous, but the difference is that the US has monetary policy at its disposal whereas Euro countries are at the will of the ECB (aka Germany).

As for the thread title--No, no one is worse than Greece. That country is screwed.

Apr 6, 2012 - 5:40pm

The biggest threat to the European market (and basically everyone since the markets suck on each others' nipples) isn't Greece, but the austerity measures that Spain and Italy are pushing through right now. Both of these countries essentially have no choice but continue with the insane budget cuts fueling massive economic contraction. The solution should be a shared German and French quantitative easing to make up for this but Merkel and Sarkozy won't play ball. The result is we have two major European players struggling for air. Spain's unemployment is 23%, and youth unemployment is over 50% - imagine what that's doing for consumer demand.

I don't think Greece is that significant. German and Austrian banks were some of the biggest holders of Greek debt, and they already took their "voluntary" haircuts. Half of the default already happened, except no one came out and said it directly (avoiding a credit event that would trigger CDS's). Yes, I know the GDP vs sovereign debt is still up there but the ECB has a few tricks it hasn't used yet. If a legit default ever happens, I think the only effect it'll have is strengthening the Euro which is bad news for the smaller european economies.

In short, Greece is small potatoes next the to pain Spain can bring. At this point, we should be looking to Germany and France to lead the EU out of this but they are both severely lacking in leadership and I don't exactly see François Hollande as a welcome change.

Apr 7, 2012 - 2:43am
Zafrynex:
she_monkey:
much worse than greece.
the scale of crisis that spain can get to is much larger than greece, and much larger than efsf/ecb can possibly handle

Unless they change ECB mandate and Draghi starts using his big printing machine...

But that would lead to a dangerous moral hazard.

Politicians and Moral Hazard? ;)

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