Spain’s Back In Debt Crisis Mode… And Will Take The EU Down

[cronus]

http://www.marketoracle.co.uk/Article37125.html

Spain’s Back In Debt Crisis Mode… And Will Take The EU Down With It

As I noted previous articles, Spain has essentially three options:

1) Spain goes the “Greek route” of agreeing to austerity measures in exchange for bailouts (which will implode the economy).

2) Prime Minister Rajoy refuses to impose austerity measures and is removed/ replaced by an EU technocrat who is pro-austerity measures (like Italy experienced last year)

3) Spain defaults/ leaves the EU.

Thus far Spanish Prime Minister Rajoy has opted to go for #1. The end result has been riots, protests, and now the threat of Spain as a country breaking up. I’ve long averred that Spain will bring about the break up of the Euro. By the look of things, we’re not far from this.

To whit, as the above article notes, Germany, Holland, and Finland have decided to pull back on the promise of a €100 billion Spanish bank bailout first established in June. These countries are now stating that this bailout should be included as part of the ESM mega-bailout fund’s banking program that could take years to implement.

Spain doesn’t have time for this. As I’ve noted before, Spain is facing a full-scale bank run (Spaniards pulled another €17 billion from Spanish banks in August, bringing the year to date bank run to over 18% of total Spanish bank deposits).

Now add multiple regional bailout requests, as well as 25% total unemployment to the mix and Spain is an absolute disaster. The Spanish Ibex knows it too:

Congratulations Mario Draghi, you promised unlimited bond buying and you bought less than one month’s worth of gains for Spain. If you want proof positive that Central Banks are losing their grip on things, the above chart is it. The moment we take out that trendline again, it’s GAME OVER (what more can the ECB promise?)

Remember, Spain is currently drawing over €400 billion from the ECB.

Let’s put this number in perspective… in June before Spain requested a €100 billion bailout, the country was drawing only €300 billion from the ECB.

Since that time and now, the ECB has promised to provide unlimited bond buying… and even Germany has indicated it would be open to some sort of a Spanish bailout…

And yet, Spain is now borrowing even MORE than it was in June.

This is not progress in any way… if anything it indicates that things are worsening in the EU’s financial system at a staggering pace. The powers that be are keeping things calm until after the election… at which time there will be absolute hell to pay.

“So what?” many investors will ask, “Spain is nothing in the grand scheme of things.”

Wrong.

Spain’s sovereign bond market is $2.1 trillion in size. And Spanish bonds are used as the collateral for hundreds of trillions of Euros worth of derivative and credit trades.

… the global derivative market is over $700 TRILLION in size. And we know that the US only accounts for about $228 trillion of this.

The EU banking system is roughly $46 trillion in size. Total EU sovereign debt outstanding is $13.7 trillion. Assuming that EU derivatives are in the ballpark of $300 trillion or so (a safe assumption), this means that EU derivatives exposure is likely:

Nearly SEVEN TIMES the size of the entire EU banking system.
More than 19 times the size of total EU GDP.
More than 21 times TOTAL EU SOVEREIGN DEBT OUTSTANDING
By now I trust you are beginning to understand why EU politicians and the ECB are terrified of an unorganized EU sovereign default: doing this would result in a significant portion of the collateral for over $300 trillion in trades (remember, I’m only assessing derivatives here) vanishing.

I simply cannot stress this last point enough so I am going to say it again in different terms: EU bonds, including the totally garbage PIIGS’ debt as well as the soon to be garbage debt from France and others are the COLLATERAL for $300+ trillion in trades.

What happens when this collateral is found to be worth much less or potentially even worthless…?

Those hundreds of trillions of Euros worth of trades blow up, there’s nothing backing them, and the banks that made them implode taking everyone’s money with them (think of an MF Global type event across the board for ALL MAJOR EU Banks).

(continued, doubt the US derivatives market will avoid contamination here?)

[devogue]

I'm glad I had an inkling of all this a couple of years ago and got my family out of Europe. Not that things will be that much better for us economically in NZ, but at least there will be no chance of my children being involved in the next grand European conflict.

[cronus]

I'm glad I had an inkling of all this a couple of years ago and got my family out of Europe. Not that things will be that much better for us economically in NZ, but at least there will be no chance of my children being involved in the next grand European conflict.

Only China and Japan to worry about?

[devogue]

I'm glad I had an inkling of all this a couple of years ago and got my family out of Europe. Not that things will be that much better for us economically in NZ, but at least there will be no chance of my children being involved in the next grand European conflict.

Only China and Japan to worry about?

Australia is the fat fuck we can keep two paces ahead of.

[JimC]

I'm glad I had an inkling of all this a couple of years ago and got my family out of Europe. Not that things will be that much better for us economically in NZ, but at least there will be no chance of my children being involved in the next grand European conflict.

Only China and Japan to worry about?

Australia is the fat fuck we can keep two paces ahead of.

Only because half of you are living in Bondi and sponging off our social security!

[devogue]

I'm glad I had an inkling of all this a couple of years ago and got my family out of Europe. Not that things will be that much better for us economically in NZ, but at least there will be no chance of my children being involved in the next grand European conflict.

Only China and Japan to worry about?

Australia is the fat fuck we can keep two paces ahead of.

Only because half of you are living in Bondi and sponging off our social security!

Only four years to go until I can claim NZ citizenship...and Aussie money!

[cronus]

If you look where NZ is then you can see it is rich pickings for any ascendant Asiatic power. I don't see Australia coming to the rescue on that day. After all they've got plenty of sheep of their own. Luckily NZ doesn't have any oil and so isn't of interest just yet. It's hydro-power station is clapped out and on the brink too.

[Warren Dew]

I'm glad I had an inkling of all this a couple of years ago and got my family out of Europe. Not that things will be that much better for us economically in NZ, but at least there will be no chance of my children being involved in the next grand European conflict.

'Coz NZ would never send people to fight in a European war? Unlike WWII?

[Warren Dew]

Why do people get so worried about derivatives markets? So a few ultrarich hedge fund investors go bankrupt - big whoop.

[JimC]

I'm glad I had an inkling of all this a couple of years ago and got my family out of Europe. Not that things will be that much better for us economically in NZ, but at least there will be no chance of my children being involved in the next grand European conflict.

'Coz NZ would never send people to fight in a European war? Unlike WWII?

Given their recent history, much less likely than 70 years ago...

Australia has a much greater tendency to send troops to support any hare-brained US war...

[Clinton Huxley]

I'm glad I had an inkling of all this a couple of years ago and got my family out of Europe. Not that things will be that much better for us economically in NZ, but at least there will be no chance of my children being involved in the next grand European conflict.

'Coz NZ would never send people to fight in a European war? Unlike WWII?

Given their recent history, much less likely than 70 years ago...

Australia has a much greater tendency to send troops to support any hare-brained US war...

Damn it, sir! They are soldiers of the Queen! I'm sure the ANZACs stand ready to do their duty!

[JimC]

I'm glad I had an inkling of all this a couple of years ago and got my family out of Europe. Not that things will be that much better for us economically in NZ, but at least there will be no chance of my children being involved in the next grand European conflict.

'Coz NZ would never send people to fight in a European war? Unlike WWII?

Given their recent history, much less likely than 70 years ago...

Australia has a much greater tendency to send troops to support any hare-brained US war...

Damn it, sir! They are soldiers of the Queen! I'm sure the ANZACs stand ready to do their duty!

Just AACs now, and even we prefer cuddling up to Uncle Sam these days...

It was the fall of Singapore wot done it...

[Clinton Huxley]

AAC will take its place in the order of battle or I'm a Frenchman!

[JimC]

Bonjour, ma petite cabbage...

[cronus]

http://www.bbc.co.uk/news/business-20067506

Eurozone business activity hits fresh low

Business activity in the eurozone contracted at its fastest pace in almost three-and-a-half years in October, a survey suggests.

The Markit Flash Eurozone Purchasing Managers' (PMI) Composite Output Index fell to 45.8, from 46.1 in September. A figure below 50 indicates contraction.

The reading is consistent with a quarterly rate of economic contraction in the bloc of 0.5%, Markit said.

Firms also continued to cut employment, but at a slightly slower rate.

The figures represent an initial estimate based on 85% of the normal number of monthly responses, and so are likely to be revised slightly.

'Clear deterioration'
The rate of decline in the services sector eased, to 46.2 from 46.1 in September, but in manufacturing the rate accelerated, to 45.3 from 46.1.

Despite the easing in services, optimism in the sector deteriorated, suggesting employment would be cut further, Markit said.

"The eurozone has slid further into decline at the start of the fourth quarter," said Markit's chief economist Chris Williamson.

"Official data have showed surprising resilience over the summer compared to the survey data, but the underlying business climate has clearly deteriorated markedly in recent months.

"While GDP may decline only modestly in the third quarter, a steeper fall looks to be on the cards for the fourth quarter."

(continued)