Spain’s Financial Crisis Essay

The frustration of this decreases in buying power has manifested in several, very large, worker demonstrations. Spanish banking system The Spanish banking system had been credited as one of the most solid and best equipped among all Western economies to cope with the worldwide liquidity crisis, thanks to the country’s conservative banking rules and practices. Banks are required to have high capital provisions and demand various proofs and securities from intending borrowers.

Nevertheless this practice was strongly relaxed during the housing bubble, a trend to which the regulator (Banc De Spans) turned a blind eye. Spain’s unusual accounting standards, intended to smooth earnings over the business cycle, has misled regulators and analysts by hiding losses and earnings volatility. The accounting technique of “dynamic provisioning”, which violated the standards set by the International Accounting Standards Board, obscured capital cushions until they were depleted, allowing the appearance of health as the problems mounted.

It was later revealed that nearly all the Spanish representatives in Congress had strong investments in the housing sector, some having up to twenty houses. Over the time, more and more news have emerged about the informal alliance between Spanish central and regional governments, the banking sector (bear in mind for example the recent government pardon of the second at command at the Suntanned Bank, while all the major parties are strongly indebted with banks, and such debts are extended from time to time) which increased the bubble size over the years.

Most regional semipublic savings banks (callas )landed heavily to real estate companies which at the end of the bubble went bankrupt, then, the callas found themselves left with the collateral and properties of those companies, namely overpriced real state and residential-zoned land, now worthless, rendering the callas in essence bankrupted. In stark contrast with countries like Ireland, no nationalization took place, instead the problem was rolled-over with the extension of the remaining real state companies debts, while the central government bailed once and again banks and Callas alike.

For more than three years, there has been a steady process of bank concentration. Spain had the densest bank office net in Europe and this has forced many dismissals of bank employees. Recently, it was shown that about 40,000 employees were redundant. Oddly, the bank Board of Members have mostly kept their Job, even those in merged entities. Golden parachutes have been prevalent It has been speculated that this was because of fear that laid off senior members would talk about the rampant malpractice inside the sector. No bankers several Spanish banks were downgraded, some to “Junk” status.

The Banana bank, the country’s largest mortgage lender, was nationalists on 9 May, and on 25 May it announced that it would require a bailout of 23. 5? billion to cover losses from failed mortgages. In addition to Spanish banks, other European banks have a sizable presence in Spain. German banks lead with an exposure of $146 billion. Quarrelsomeness’s “rushed in” during the early asses. Barclay, Deutsche Bank, and INS have large Spanish units. It was agreed by rezone finance ministers on 9 Lune 2012 that Spanish banks would be provided with up to ?Bonn of rescue loans. His money is to be distributed via the Fund for Orderly Bank Restructuring (Fro), and that the exact amount to be loaned would be determined after audits of the banks. A statement from SEC President Jose Manuel Barrows and vice-president Loll Rein welcomed the move, saying “With this thorough restructuring of the banking sector, together with the on-going determined implementation of structural reforms and fiscal consolidation, we are certain that Spain can gradually regain the confidence of investors and market participants. The move was also welcomed by US Treasury Secretary Timothy Eightieth. Recent bank stress tests will enable the Spanish government to make a formal request for the ?Bonn credit line. Further analysis and tests will be undertaken prior to restructuring and rationalization over the next year. Restrictions on the credit line exempting funds from covering “legacy assets” suggests limits to the planned banking bailouts. In May 2012, Spanish banks lent ?1,660 billion to the private sector and took in ?896 billion.

Historically it would borrow the difference from foreign banks (I. E. Inter-bank lending) but reduced access has led to a greater reliance on CB loans. Spanish banks borrowed a record ?376 billion (net) from the CB in July 2012. Depositors are fleeing Spanish banks; deposits have dropped 4. 7% from June to July (2012) as money is moved abroad. On 28 November 2012, the European Commission approves a Spanish government plan to shrink and restructure three major Spanish banks (Banana, NC Banc and Catalonia Banc) and sell a fourth (Banc De Valiance).

This is part of a ?37 billion SEC bailout or restructuring approved in June (see above). It includes loss-taking by investors of up to ?10 billion, the creation of a “bad bank” to absorb up to ?45 billion of failed loans, closing thousands of bank branches, and reduce staff. Employment crisis After having completed substantial improvements over the second half of the asses and during the asses which put a few regions on the brink of full employment, Spain suffered a severe setback in October 2008 when it saw its unemployment rate urging to 1996 levels.

During the period October 2007 – October 2008 Spain had its unemployment rate climbing 37%, exceeding by far the unemployment surge of past economic crises like 1993. In particular, during this particular month of October 2008, Spain suffered its worst unemployment rise ever recorded and, the country has suffered Rupee’s biggest unemployment crisis during the 2008 crisis. Spain’s unemployment rate hit 17. 4% at the end of March 2009, with the Jobless total now having doubled over the past 12 months, when two million people lost their Jobs.

In his same month, Spain for the first time in her history had over 4,000,000 people used to grim unemployment data. By July 2009, it had shed 1. 2 million Jobs in one Hear and was to have the same number of Jobless as France and Italy combined. By March 2012, Spain’s unemployment rate reached 24. 4%, twice the Euro-zone average. Spain has a two-tiered work force where privileged labor gets wage increases as unprivileged labor is thrown out of work. The privileged two-thirds have “armor-clad permanent contracts” that shields them from the ravages of recession while the non- reviled, generally temporary workers, are dismissed.

Rigid labor laws prevent Engage reductions, encouraging dismissals instead. Dismissals are costly and companies are hesitant to hire new workers prompting many to seek Jobs abroad. During the last decade, Spain’s unit labor cost rose 40% relative to German unit labor cost changes making Spanish labor uncompetitive at the current wage scale. Unions organized a general strike to protest proposals to weaken union power, enable cuts in wages, and lower firing costs. By the end of 2012, Spain’s unit labor costs improved with respect to the other Rezone members.

It narrowed the gap with Germany by 5. 5 percent and 4. 6 percent with respect to France. Spain’s policy of internal devaluation cut public sector salaries by 5% with an additional 7. 1% cut consisting of a suspension of the “14 month bonus. ” Private sector wages have changed little and Spain continues to discourage private investment. Spain, as in other southern European nations, relies heavily on the inter-generational family structure for a significant portion of the social safety net.

Employment expectations should be adjusted for this cultural ethos. The unemployment rate for the “principle readiness” is 12. 4% less than the 25% overall rate None 2012. ) Employment is also found in the underground economy, which is estimated to be as large as 20% of the economy during the boom years. (out Unemployment Unemployment for those under 25 is 50%. Spain’s current generation is considered the most educated that the country has ever had, yet it faces the greatest rate of unemployment in Europe.

Roughly 68% of young people are willing to leave the country to search for a Job, and those with college degrees are willing to settle for Morning at McDonald’s for a paycheck. The State Secretary for Unemployment states that higher education is a way for the current generation to battle this issue; however, the government cuts that are occurring are slashing university staff salaries and increasing the number of students per class. For those paying their own way through college, the tough economy has made it nearly impossible to find a Job and be able to study simultaneously.

Hopes for the future are dwindling as Spain’s unemployment rate is almost as high as it was for the U. S. During the Great Depression. People are beginning to fear the transformation of this generation into en referred to as a “Lost Generation” in which they are constantly looking for work and in the future end up being closed off from good careers. The higher this number rises, the more strain it will put on the Spanish economy. The stress of not finding Nor is also affecting personal relationships as well with young adults separating from partners because of the strain.

Youth unemployment is about double that of overall unemployment in Europe and the longer this trend continues, the greater the Large scale immigration continued throughout 2008 despite the severe employment crisis, but by 2011 the COED confirmed that the total number of people leaving the country (Spaniards and non-Spaniards) had over taken the number of arrivals. Spain is now a net emigrant country. There are now indications that established immigrants have begun to leave, although many that have are still retaining a household in Spain due to the poor conditions that exist in their country of origin. Ours in Spain As the financial crisis was getting started in Spain, it was already underway in the U. S. And other western countries. The decrease in disposable income of consumers De to a sharp decrease in Spain’s tourist industry, a rare thing for a country with so many coastal towns. Indeed, the EX. as a group saw a decline in tourists coming to their countries in 2008 and 2009, with -13% tourism growth in coastal Spain. Despite its traditional popularity with Korean and Japanese tourists, the relatively expensive cost of vacationing in Spain led many to pursue “sun and beach” Mediterranean getaways in Turkey, Spain’s tourism rival.

However, Spain has also seen the largest growth again in that industry since 2011 and 2012. Spain’s geographical advantages, mineral atmosphere, the Arab Spring, and other non-economical factors are contributing to its resurgence as a key tourism destination. While the economy of Spain itself is not doing great, APP is general is going back up around the globe and as people decide to travel again, Spain is at the top of their lists. Not only that, but ‘Eileen unrest in North Africa and the Middle East is redirecting tourists concerned about their own safety back to locales with relatively stable governments, like Spain.

As Spanish CDC hits a record high of 633 basis points and the Roy bond yield at 7. 5% (23 July 2012) Spain’s economic minister travels to eminent financial collapse”. Promised borrowing by the CB has enabled Spain’s 10- ear yield to stay below or close to the 6% level. Ratings For the third time in 13 months, Moody’s Investors Service has cut Spain’s rating. On 18 October 2011 Moody’s Rating cut Spain’s rating by 2 notches to AAA from AAA with the outlook remaining negative. Standard and Poor’s has downgraded Spain on 14 October 2011 and Fitch Ratings cut it to the same level on 7 October 2011.

On 14 June 2012, Moody’s downgraded Spain to Baa, one notch above “Junk. ” Standard and Poor’s downgraded Spain to EBB- (one notch above “Junk”) on 11 October 2012. DB’S downgraded Spain to single-A, which remains higher than the major rating agencies. This rating allows the CB to use a lower margin for banks that borrow with Spanish debt as collateral. After a recent review, Moody’s maintained Spain’s investment- grade credit rating, removing the pressure on the country’s debt. This decision by Moody’s assures that Spanish bonds will continue to gain investor support; yields feel 5. 0%, a level last seen in April. Although Moody’s can still downgrade the country’s ratings in the future, the decision to not downgrade will encourage the buying of Spain’s bonds. Ere Bailout of Spain On 9 June 2012 the Regroup held an emergency meeting to discuss how to inject UAPITA into Spanish Banks. The MIFF also announced this day that the capital needs of the Spanish banks was estimated to be about 40,000 million euros. The Regroup announced intentions to provide up to 100,000 million Euro to the Fund for Orderly Bank Restructuring to the Spanish government.

The Spanish government is then expected to give the appropriate amount of money to the respective banks. On 21 Lune 2012 it was decided that 62,000 million Euro would be shared among the Spanish banks in need. The European Union warned that rescued banks are subject to control and Union experts would meet stringent requirements. Since then, the country’s borrowing costs have reached levels deemed unsustainable in the long run, raising the prospect of a second aid program for Madrid following the 100 billion Euro lifeline it obtained for its banks in June.

Spain expects the European Commission, to approve the restructuring plans of the banks needing aid on 15 November 2012 and then to authorize the disbursal of the first credit line of up to 100 billion euros within three weeks after that. A larger economy than other countries which have received bailout packages, Spain had considerable bargaining power regarding the terms of a bailout. Due to reforms already instituted by Spain’s conservative government less stringent austerity requirements are included then Nas the case with earlier bailout packages for Ireland, Portugal, and Greece.

As the largest economy in the ELI, Spain remains one of the biggest concerns. In 2011 Marino Rajah took over the government with his conservative views, pushing out Separate and his left wing views. Trying to get Spain out if the highest unemployment bailout for Spain has been estimated to not be enough to restore the economy. There is a serious debt in the country, and some serious cuts would have to be put in place o be able to restore the economy at this point. The recession has been a concern for while, but shows no sign of lifting any time soon because Spain has yet to meet budget cuts and shows no sign of changing.

Many youths are trying to leave Spain and find Jobs elsewhere, creating a prominent problem for the future economy and ebb market. Rajah recently proposed a new budget for 2013 that would be very different and would cut government spending by 8. 9%. If this passes, it will be Interesting to see how it impacts the economy and the EX. as a whole. Separatist Movements Spain’s recession has caused many to believe that Catalonia would be better off as a separate nation. Catalonian have always seemed to have a strong sense of nationalism, but the economic crisis has only made them feel more strongly.

In 2010, Spain’s Constitutional Court weakened the Statute of Autonomy for Catalonia. The Statute of Autonomy included a package of laws that gave more power to the region and would have recognized Catalonia as a nation, although one still within Spain. Many Catalonian were frustrated by this move by the central government in addition to the spike in unemployment. There are over 800,000 people unemployed Catalonia, about 22% of the population, which is still lower than Spain’s national bobbles rate.

One worker, Roger Coercion, claims, “Catalonia has the capacity to reach full employment. What stops it is Spain, and above all the Spanish government, which has been a disaster. ” Spanish Prime Minister Marino Rajah insists that Spain’s constitution doesn’t allow a region to secede on its own. Spain’s Basque region tried to get such a move approved in Parliament in 2005 but failed. Regional president Arturo Mass says he will hold a referendum on Catatonia’s self-determination, whether the Spanish government permits it or no