Spain drops reassuring gloss as crisis deepens

[Dover]

Source: Telegraph, UK



Spain's finance minister Pedro Solbes has stunned the markets with an admission that his country faces the worst economic crisis in its history as the full effects of the property crash spread through the economy.

"This crisis is the most complex we have ever lived through given the plethora of factors on the table at the same time," he told Punto Radio in Madrid, breaking with past efforts to put a reassuring gloss on events.

Mr Solbes said the Madrid bourse had suffered an "earthquake", crashing 27pc since the start of June. He blamed the toxic cocktail of high oil prices, the global credit crisis and the sharp slowdown in the key export markets of North America and Germany...cont'd



Read more: http://www.telegraph.co.uk/global/main.jhtml?xml=/global/2008/07/21/noindex/cnspain117.xml&CMP=EMC-expat2008

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European recession looms as Spain crumbles
By Ambrose Evans-Pritchard


The eurozone is tipping into a deeper downturn than America itself despite the tremors in the US mortgage industry, and may already be in full recession for the first time since the launch of the single currency.

Industrial production for the EMU bloc fell 1.9pc in May, according to fresh Eurostat data. It is the sharpest one-month decline for the region since the exchange rate crisis in 1992. Officials in Berlin have warned that Germany's economy could contract by as much as 1.5pc in the second quarter as export orders crumble.

Industrial output in both Italy and Greece has slumped 6.6pc over the past year. Portugal is off 6.2pc. "It is a very ugly picture: we're on maximum alert," said Emma Marcegaglia, head of Italy's business federation Confindustria.
Rome is now lobbying for a "New Deal" to revive Italy's economy through massive infrastructure projects.

The idea is to use bonds issued by the European Investment Bank, allowing EU states to circumvent the 3pc limit on budget deficits imposed by the Maastricht Treaty.

Jacques Cailloux, Europe economist at the Royal Bank of Scotland, said a "reverse decoupling" is now under way as Europe goes down harder than the US - just as it did after the dotcom bust. "There is loss of momentum across the board. We can't exclude a recession," he said...cont'd

http://www.telegraph.co.uk/global/main.jhtml?xml=/global/2008/07/21/noindex/ccspain115.xml

[Dover]

1. European recession looms as Spain crumbles

The eurozone is tipping into a deeper downturn than America itself despite the tremors in the US mortgage industry, and may already be in full recession for the first time since the launch of the single currency.

Industrial production for the EMU bloc fell 1.9pc in May, according to fresh Eurostat data. It is the sharpest one-month decline for the region since the exchange rate crisis in 1992. Officials in Berlin have warned that Germany's economy could contract by as much as 1.5pc in the second quarter as export orders crumble.

Industrial output in both Italy and Greece has slumped 6.6pc over the past year. Portugal is off 6.2pc. "It is a very ugly picture: we're on maximum alert," said Emma Marcegaglia, head of Italy's business federation Confindustria.
Rome is now lobbying for a "New Deal" to revive Italy's economy through massive infrastructure projects.

The idea is to use bonds issued by the European Investment Bank, allowing EU states to circumvent the 3pc limit on budget deficits imposed by the Maastricht Treaty.

Jacques Cailloux, Europe economist at the Royal Bank of Scotland, said a "reverse decoupling" is now under way as Europe goes down harder than the US - just as it did after the dotcom bust. "There is loss of momentum across the board. We can't exclude a recession," he said.

..snip..


The precipitous slide now under way in Europe has yet to cause investors to lose their ardour for the euro, but a number of analysts, including Bill Gross, head of the giant bond fund Pimco, say there is no justification for the euro's 25pc to 30pc over-valuation against the US dollar. "We're turning incredibly bearish on the euro," said BNP Paribas.

The counter argument is that the US has merely stolen growth from the future with this spring's one-off fiscal stimulus package. Dollar bears expect a nasty second leg to the crisis later this year, forcing the Fed to slash interest rates to 1pc or lower.

Goldman Sachs said Europe is the "tie-breaker" for the whole global economy...cont'd

http://www.telegraph.co.uk/global/main.jhtml?xml=/global/2008/07/21/noindex/ccspain115.xml

[msongs]

2. so will they take out their frustrations on gays and jews like the old days? nt

[alcibiades_mystery]

9. Roma

Gypsies.

And immigrants. From Africa. From Eastern Europe. From the Middle east.

It's getting very ugly in Europe.

End of history, my ass.

[xchrom]

3. recommend

[ensho]

4. wow, worst in country's history

really bad news - wishing them well

[Blue_Tires]

5. i don't get it -- what is the cause of all this?

[David__77]

7. Credit bubble. Same as here.

Same thing COULD indeed happen here. The conditions exist for it.

[WheelWalker]

15. Conspicuous Comsumption

[wvbygod]

6. Didn't Spain just elect a Socialist leader?

All the proponents for their new leader were saying what a boon it would be for Spain
and its people. What in the heck happened? Hopefully there is a strong safety net to
handle all the poverty that may be coming soon.

[alcibiades_mystery]

10. Er...four years ago

That Zapatero was RE-elected this year hardly makes him "new."

It is, in any case, hilarious that the global financial crisis we are now experiencing could in any way be blamed on so-called "socialist governments." It is an effect of rampant, unregulated capitalism through and through. The collapse of regulatory structures under capitalist globalization regimes has thrust us back into ten year cycles of boom-and-bust so common in the late 19th century. And we know how that eventually ended.

[Wednesdays]

11. Still, people usually point the finger at whomever is in charge

no matter who that may be.

Another Franco era? Let's hope not. :scared:

[alcibiades_mystery]

12. And they will point at Sarkozy, and Merkel, and Berlusconi, and - of course - Zapatero

Not exactly a cadre with uniform socialist tendencies. This crisis is very clearly a capitalist crisis. If anything, as the recent fuel protests in Spain demonstrate rather amply, the people there are screaming for more government intervention in market processes, not less.

[Zynx]

13. Considering this crisis has been the result of banking DE-regulation I find

it hard to blame it on Socialist leaders.

[The Backlash Cometh]

8. Cheney is loving the chaos he created. Creep.

[cliss]

14. Thanks for the info, Dover.

Here are some of my thoughts; I'm mainly addressing the issue that Europe will be "hit harder" than we will in the U.S. over the upcoming meltdown. I'm not so sure that that's the case.

It's true that Europe did a Copy-Kat and created their own real estate bubble. They overbuilt by a long shot. I think the biggest bubbles are in countries a) Spain, b) the U.K., c) Sweden and d) Denmark.

They also have their problems with their own subprime mess. They've got banking problems just like in the U.S.
Monkey see monkey do!
Also as if that wasn't bad enough, Europe also BOUGHT a ton of subprime "investment" from the U.S. Now they are seeing their toilet paper investments fall apart.

But I still believe they will do better than the U.S. in the upcoming meltdown. Especially with the catastrophic rise in oil prices. Europe uses less than 1/2 as much gas as the U.S., per capita. They are used to high gas prices and have built an infrastructure which is already ahead of the game. Plus they are not as big consumers as the bloated US so they should weather the storm much better.