Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a594046

Q&A: Spanish banking crisis

A quick guide to the links between Spain’s feeble banks, its growing public debt and the soaring borrowing costs that are crippling the nation.

 

The prohibitively high cost of borrowing for the Spanish government is effectively driving the country into greater debt. Treasury minister Cristobal Montoro commented: ‘Spain does not have the door of markets open to it and the challenge is to build confidence with these markets.’ Most other countries were forced to seek a bailout once their bond yields broke above 7%.  

What options are being discussed for a bailout?

The amount required to rescue the country’s banks is estimated to be between €40 billion and €180 billion. Spanish economy minister Luis de Guindos has denied claims that the country’s banks will request a bailout and stressed that the country is awaiting the results of the banking sector audit before further steps are taken. 

The options open to the nation are limited as the current European Financial Stability Fund (EFSF) doesn’t have enough money to bail the country out. Although the funds could cover the banks, the rules only allow countries to access the money.

A possible option is the formation of a banking union, whereby financial institutions would be monitored at an EU level, a fund would be set up to help wind up failing banks and deposits would be guaranteed across the union to avoid capital flight from one nation to another.

However, there has been great resistance from German chancellor Angel Merkel to agree to the plan, which may ultimately see German taxpayers foot the bill for eurozone banks.

Sign in / register to view full article on one page

52 comments so far. Why not have your say?

Guy Dobson

Jun 06, 2012 at 17:58

Unprecedented indeed and it explains why many financial firms have put new projects and deals on hold for the time being. This month could be the tipping point over Greece and Spain - although whilst many are happy to cast Greece adrift Spain is a totally different matter. We watch and wait with all eyes on the IMF as the only creditable institution with any chance of salvaging the situation

report this

Robert Hutchins

Jun 06, 2012 at 18:16

I think you´ll find that Bankia has not yet "received a further €19 billion from the government on May 25". Spain seems presently to be trying to get funds to bail out Bankia and other banks, for a possible total of Euros 50 to 100 billion, without the money being called a "bail-out" and with the least possible number of conditions. Assuming it eventually gets EU funds for the required amount at about 1% interest, without any politically impossible conditions, it could be considered a good deal! I should think quite a lot of banks - and people - would quite like to borrow at 1%.

report this

William Bishop

Jun 06, 2012 at 19:22

The previous Spanish government seemed reluctant to grasp nettles. I had thought of the new one as being better, yet they have been slow to identify the scale of their banking problems or indeed those of provincial administrations. This leaves them still at risk.

report this

abbass hassan

Jun 06, 2012 at 19:46

Out of this subject ,I wonder if I can get some advice please , I am thinking of lending a develepor some money on 18% interest as well as first charge on his freehold property with a solicitors contract , any comment please. Thank you

report this

Jack Belfitt

Jun 06, 2012 at 20:23

It would seem to me that the entire capitalist system is under threat when , as of now, National Gilt Edged Securities longer command respect as a Haven of Last resort.. The simple fact is that internation trade is entirely based on the fact that debts are honoured. No one with an atom of common sense lends money or supplies goods to people or organisations that organise their affairs so that they cannot pay. Yet this is exactly what politicians expect to happen. The blame for the present international financial crisis lies excusively with left wing administrations who by exploiting the democratic process, bribe the electorate to vote them into power where they then borrow to pay for services that cannot be afforded in the presumption that someone else at a later date will be held responsible for the debt. This is the time that these free spending rats creep away into their holes and demand retribution on those inheriting the mess that they themselves have brought about.have caused. Should this not be time that the democratic process be re-examined and that those politicians bringing about such huge distress should be punished?

report this

William Phillips

Jun 06, 2012 at 20:32

How's Portugal?

report this

dogdays

Jun 06, 2012 at 21:09

Who can say, as no one now trusts the books.

report this

seahound

Jun 06, 2012 at 23:16

abbass hassan

If he is willing to pay 18% interest it is high risk.

Stay clear !

report this

abbass hassan

Jun 07, 2012 at 09:30

Thank you .

report this

DirtyHarry

Jun 07, 2012 at 09:31

Bankia currently valued at 2 billion euro but needs a survival loan of 19 billion. I think the spanish government should realise that this bank is beyond rescue and let it fail and concentrate its bailout money on compensation for depositors.

In most other industries in trouble this would be called consolidation. Whats so holy about the banking industry?

report this

Lets Face It

Jun 07, 2012 at 11:02

I have not seen any real answers to solve such debt problems or how to shift away from this failed global economy and continuing spiral into the abyss.

We all seem to be waiting for Angela Merkel to wave a magic wand. (as if that is going to do anything!)

Come on you economists out there....what is really going to get rid of debt and bring growth back?

report this

Jack Belfitt

Jun 07, 2012 at 12:31

I am afraid that 'Let's face it' is going to be disappointed. Economists will not restore the situation. Angela Merkel also does not have a magic wand. What is happening is that Germany has been purcuing a responsible economic policy and as a result has no debt problems. Now what is happening is that all of the idiotic politicans who are responsible for the debt problems in their own countries are now looking for someone else to shoulder the responsibility for the enormous debt problems that they have created. All of the debt ridden politians who are so keen for Germany to take on others debt should be themselves told to underwrite it themselves! That would bring them back into the real world!

report this

Robert Hutchins

Jun 07, 2012 at 14:53

Jack Belfit: While I agree with what you´re saying, Germany does have an overwhelming interest in getting the mess sorted out without anyone defaulting. This is because of the huge amount owed to their banks by the countries in danger.

Spain, in fact, did pursue an apparently responsible policy up until cataclysm in 2008. Their national debt was relatively modest and governments did live within their means. (They were, of course, helped by the flood of European money for "cohesion" and "restructuring", which paid for a large chunk of all the high-speed trains with no passengers, the airports with no planes, the motorways with no cars and the prestige projects lying empty.) It was the bursting of the property bubble that undid them - just as it would have done the UK had the UK been in the euro. The trick now for Spain is to fix it so that the EU recapitalises their banks at derisory interest rates with as few conditions attached as possible - while still being able to say that it did not have to be bailed out. I think they will manage this.

report this

Jack Belfitt

Jun 07, 2012 at 19:50

Thank you John for your response to my contribution. I would though differ from your contention that Germany has an overwheming interest in getting the mess sorted. That it has an interest is self evident. It is with the word overwhelming that I would quarrel. Without there being any definitive quantification as to the differential, how are we to know that the HUGE amount owed to their banks would not be dwarfed by the millions of millions that it would cost them should they submit to the bullying. It has to also taken into account that once they indicate any sort of submission the ravening wolves representing the rest of the debtor nations will be at their throats and this could easily reveal that the HUGE amounts owing to their banks as being miniscule in comparison. With respect, what each of us is doing is submitting contentions without actual truthful facts and these are something that politicians certainly will not reveal. It is this concealment that we all have to fear and were I a German I would distancing myself from the other reprehensible lot and be looking at the rest of the world to restore the lost balance by trade.

report this

Robert Hutchins

Jun 07, 2012 at 22:48

Jack: I´ve tried to find the "John" to whom you replied, as his comments seem to have been very similar to mine. I note that you put HUGE in capitals all the time, as though you think John was exaggerating. He was not. The figures for the amounts owing to German banks, and also to French and British ones, are publicly available - and they are huge. I don´t remember the figures offhand and it´s late here, so I don´t feel like looking them up. I do remember, though, a sum of 60 billion euros owed to British banks by Greece and somewhere about 180 billion to German banks. The 60 billion to UK banks comes to not far short of a thousand per head of UK population., so, yes - I think John quite reasonably describes the figures as "HUGE".

In Spain they frequently make the point that Germany has had a benefit in that their interest rates on government debt are at very low levels, due to their safe haven status. They also frequently say that the main benefit of the euro has been.............Germany. Their reasoning is obvious and not so silly.

A lot of the figures on which politicians are basing their negotiations and juggling are public, though I expect they are also frequently incorrect.

I hope, if he reads this, that John will not be upset that I have replied or, if he is upset, that he is not hugely so.

report this

Jack Belfitt

Jun 08, 2012 at 09:51

Robert, sorry for the delay. I have to confess to confusion when composing my last contribution and mistakenly wrote John because I had just been dealing with a John! So sorry! OK, accepting the figures that you content as being accurate and as such HUGE, the corollary to this surely has to be that the possibility of this ever being repaid is that it is just not possible. As I would view it you appear to be attributing the value of the debt as being tangiable value. If, as I believe, there is no hope of it being paid, then it is valueless irrespective of it being 'on the books'. Surely one cannot deal with 'Real economics' simply by making convenient but false presumptions. Any contribution that is forced out of Germany will be only be of a short term bridging nature but still leaving the debt situation unsolved and presumably to return to Germany again in the future with the begging bowl. Well,it may get through this time but I do not think that the German electorate will be prepared to live with an ongoing syndrome. The states that create the debt should not be allowed to avoid the consequence of their irresponsibility. To allow them to do so is to give a signal to all other left leaning governments that 'Some else will pay'. This will lead to the coillapse of the capitalist system.

A gradual approach to the present situation may help but I do have some dark thoughts that we will all be in for some civil strife!

report this

Robert Hutchins

Jun 08, 2012 at 12:20

Jack: I think the apparently unthinkable would be the best solution for a number of countries. Leave the euro. They would certainly go through a period of mayhem, but then their exports and tourism would probably leap ahead with a drastically devalued currency. (This is what happened in the UK, when it left the ERM - the pound dropped sharply, but then a year later had risen even more sharply.) This probably will not happen in Spain, because, for historical reasons, when they joined the EU and then the euro it was depicted as having reached the Promised Land. I don´t know what Spain can do. The overall figures are not particularly catastrophic at the moment, but the basic problem is - the collapse of one of the two main industries, construction. They talk a lot about "solidarity", as though the EU really were one big country in sentiment as well as reality which, of course, it isn´t.

One reason for the reluctance to let even Greece go may be exactly the possibility that the scenario I depict above turned out to be correct. An arrangement is made covering Greece´s euro debts and their essential imports for the next two years. The drachma is reintroduced and it promptly loses 50% of its value. This gives rise to doubling of agricultural exports and a big increase in tourism. Suddenly things don´t look so bad at all and other countries still in the euro, like Spain and Portugal note what has happened in Greece with great interest. It would, in fact, be a return to normal economics. The euro always was a political project and not an economic one.

I think an outcome of the mayhem and, possibly, a solution as well is going to be high inflation.

report this

Jack Belfitt

Jun 08, 2012 at 15:46

Robert, I find your dissertation most rational and appealing in it's possibilities. The trouble is that the objective of the debtor nations is to avoid repayment and the revealing of the idiocy of the politicians that have brought this situation about! Being to old myself, I will be voting you in as our next Prime Minister!

report this

Robert Hutchins

Jun 08, 2012 at 18:16

Jack: If the next prime minister is to be decided based on age, I regret that it´s statistically very probable that it will be you. The qualifications for prime-ministership are like those for running the 100m.. There´s nothing to stop you at any age, except death, of course, but a time of 56 minutes may not win any prizes. Maybe that´s the problem - top politicians should be younger, the more so the better. Pitt the Younger was only 24 when he became PM..

report this

Bhavesh Sutaria

Jun 09, 2012 at 09:56

Let's not forget the US. It is the supreme warlord in this epic battle of all proportions, who dictates everything, because the consequential effects for USA is unimaginably devastating, if things go pear shaped.

The Americans ain't going to let that happen easily, and will no doubt be pressurising behind the scenes. Ms Merkel will demand fiscal union & control of EU if Germany is to put up cash. There is always a price to pay for anything, even a rescue. The poorer countries will be turned into EU / US / China satellites, serving the richer ones in terms of cheap labour & land, etc, as is happenning to most of the African continent right now. Of course, it will all be done nicely & respectfully, but thats what it is.

Throughout history, poorer people serve the richer ones. Democracy has added respect, but nothing changes, the game remains the same

The Dow Jones has bounced up off a critical key indicator, and unlike the lemmings who are jumping ship right now, it is in fact going up to circa the 15,000 level per charts. Its certain that both the EU and US will be forced print money or swap debt for cash, or similar fancy schemes, to postpone the debt hit until a recovery enables the banks themselves to take the hit in future more comfortably without causing panic.

The game is: pass the debt parcel, delay, and pay another day !

report this

Pertan

Jun 09, 2012 at 10:04

Robert Hutchins misses one point in his scenario and that is the catastrophic chain reaction in the interbank loans with other European countries including the UK. Massive write-offs would result setting off another financial crisis. One cannot view the problem countries in isolation.

report this

Robert Hutchins

Jun 09, 2012 at 11:50

Pertan:

Money owed by Greece and, to a lesser extent, by other countries in trouble should, under normal conservative accounting standards, already be 100% reserved for by creditor banks. The only trouble is that were they to do this some of the biggest banks in Europe would already be technically bankrupt. One way or another, and however disguised, the "solution" is likely to be printing a few trillion euros. This will solve the problem until it re-appears at some point in the future, because of the inherent difference in the euro economies.

The Americans seem to have got off relatively lightly so far and even seem to feel free to lecture Europe on what it should be doing. The crisis was triggered, though not caused, by their "prime" dodgy mortgage-backed securities. It´s surprising that no-one has, so far as I know, sued the American banks responsible (those that still exist) and the American regulators, who obviously did not do their job.

report this

Lets Face It

Jun 09, 2012 at 11:50

How about these external debt/Average Income Per person/public debt (wikipedia) figures:-

Greece = $92 billion $33k / 90% of GDP

Spain = $1trillion $34k / 38% of GDP

Portugal = $461 billion $22k / 64% of GDP

France = $4.4 trillion $33k / 64% of GDP

Italy = $1 trillion $31k / 103% of GDP

UK = $10 trillion / $37k /47% of GDP

Germany = $4.4 trillion / $35k / 62% of GDP

Norway =$469 billion / $57k / 90% of GDP

Belgium = $1.3 trillion / $38k /81% of GDP

Ireland = $1.8 trillion / $48k / 31% of GDP

Austria = $750 billion / $40k / 59% of GDP

Finland = $271 billion / $38k / 32% of GDP

Estonia = $30 billion / $32k / 3.8% of GDP

Cyprus = $29 billion / $29k / 49% of GDP

USA = $12 trillion / $48k / 61% of GDP

China = $420 billion / $6k / 16% of GDP

Anyway, do these figures tell us much? Are they anywhere near accurate? Does anybody know or care? Who really owes who and how/why? Are we really any different to other years? Who has the best and worst economy?

I think we need a proper presentation/understanding of why Europe has got itself into a negative groove. Is there really a problem?

I can't see why we don't just shift the goal posts. That is, start again by scrapping the euro, all going back to single currencies, pay all external debt with I.O.U bonds at the same interest rate. Then get back to managing our own economies without European politicians interfering.

I mean.....at the end of the day....do we really want the Germans in charge?

report this

george mckenzie

Jun 09, 2012 at 12:04

I have at present £128,000 in several Santander UK bank accounts, is my money safe with them, or should I reduce the amount to the £86,000 compensation limit ?

report this

Bhavesh Sutaria

Jun 09, 2012 at 12:34

The debt is US generated, exported & instigated globally by the investment banks. Schadenfreude is nearly here. The US will pay the price by being forced to prop up themselves & the ECB with trillions one way or another.

Either way, we, the people end up paying eventually.

The cost of the money printed is high inflation for a long time. This reduces people's wealth. That's how we will pay the debt

The fractional reserve lending system of silly lending, and the reckless merging of retail & investment arms long ago, have caused this situation where the devil banks have to be kept alive to keep us from going bust

The next 2 generations will suffer to pay off these huge debts ...

report this

Pertan

Jun 09, 2012 at 12:36

Robert Hutchins

Another fact that is not generally known is that the ECB has lent money to the Eurpean banks at very low rates (0.5%) under the requirment that they purchase Government bonds of troubled nations (Italy, spain, Portugal etc) in order to support those debtor nations funding and renewal of debt (remember that debt is not being paid off, its being renewed at higher interest rates) and to keep interest rates down. That very same debt paper is used as collateral for the bank loans granted by the ECB. The cycle is complete, local and eurpean banks (being persuaded to) buy up new government debt, pension funds are becoming less of a buyer as credit ratings of some of these nations fall below the required level.

report this

Bhavesh Sutaria

Jun 09, 2012 at 12:55

Toilet paper money situation .... Pertan makes an important point ...

So lets see ... basically ... most of the money circulating is just printed money loan cash out of thin air ... floating round & round in ever increasing circles as its used as security for future lending ... like fake blood

The basic debt principles still apply ... one day it has to be paid !!

When that happens, countries will default , write offs happen globaly. The final situation is countries, banks, companies & people are a hell of a lot poorer, and wake up very painfully to realise there is no free lunch.

Only bankers, politicians and authorities, all colluding recklessly in the mission of greed & a billion dollar profit culture which is doomed to fail

report this

William Phillips

Jun 09, 2012 at 13:33

LOL at those benighted, trusting souls who even now tell us that the worst cannot happen-- because some government or combination of them 'wouldn't allow it to happen'.

Do you think they wanted the mess we are already in to happen? The EUSSR and USA between them already had far more power, on paper, to intervene, dictate market behaviour and bleed taxpayers white to stop 'it' happening than their predecessors in 1929. Why should the paralysed panickers of Europe and its pompous supranational institutions be more on the ball now than in 2008-- now the situation has grown so much worse for so many countries, and not just little ones such as Iceland and Ireland?

Because it is always darkest before the dawn, and because the grimness of the times may shock even Mr Rumpy-Pumpy, M. Flanby and Herr Angela into pulling off the greatest masterstroke of refinancing since Dr Schacht invented the Rentenmark? Yeah, right.

The blind faith some helots have in their leaders' competence (never mind their honesty in claiming to work for those who voted for them rather than unseen interests) appears to be infinite. Just as well for those crooked and clueless leaders and their 'project' of turning the crisis they couldn't sort into a plan for complete de-democratisation and abolition of historic sovereignties on the European land mass. The Holy Roman Empire/Fourth Reich will be skint, but it vill rule, you hear, rule!

Those of us who don't share the faith are dusting down our mattresses (gold bullion for the storage of), reviewing our larders' stockpile of tinned food and oiling our air rifles.

Better off out! Better now than later!

report this

Robert Hutchins

Jun 09, 2012 at 13:43

Pertan: The whole thing´s crazy! The biggest borrowers from the ECB are Spanish banks. I don´t know that they are required to purchase government debt, though that is, in fact, what they have been doing. Borrowing billions at 1% (or you may be right when you say 0.5%) from the ECB and buying Spanish debt at 5% (say). They have had a barrage of criticism in Spain for doing this, rather than starting giving credit again, the lack of which is strangling Spanish industry. Or so Spanish industry says. I have myself applied for a loan of a billion euros at 1%, as I could do with the money right now, but I am told I may not get it. Perhaps I ought to ask for 20 billion euros to improve my chances.

The debt/GDP figures quoted above by Lets Face It are, I think, some time out of date and have changed drastically. Also, the main problem in Spain (and the UK) is non-governmental debt - owed by the citizens, mainly as a result of buying over-priced housing and property speculation. Gordon Brown informed the British public that he had abolished Boom and Bust, so, clearly, prices could only go up and up. Precisely the same thing happened in Spain.

report this

Pertan

Jun 09, 2012 at 14:05

Robert Hutchins

Yes but most of these local banks or Cajas as they are known are now nearly all owned by the State or the regional authorities, so whether its private or public debt becomes a mute point.

report this

Robert Hutchins

Jun 09, 2012 at 18:13

The "cajas" were and are banks by another name. The total debt, public and private, that Spain has is (I think I read) about 250% of GDP.. It´s the private part which is causing the problem. One area in which the cajas differ from normal banks is in the heavy politicisation, with the majority of the top jobs in them being held by politicians who generally have no relevant experience in banking. They were also used extensively for so-called prestige projects, which the regional governments have saved money on by not paying the money borrowed for them. The 250% odd that Spain has as total debt should be compared with the over 500% that the UK has. (Second only to Japan). One of the on-going scandals with the cajas is the huge (sorry, Jack, if you happen to read this) amounts of compensation paid to directors. In Bankia, for instance, someone who had been with the bank for less than a year has collected Euros 18 million on having his services dispensed with. Several others have collected, or are due, sums of over 10 million. I almost feel sorry for the large number who have been paid only about 5 million. These are all people running failed cajas that had to be bailed out by the State.

I think I haver a solution to the overall problem. What, say, is Rhodes worth? Or the Acropolis? In the case of Spain, they could sell off Mallorca and throw in Ibiza if negotiations prove tough. Portugal has Madeira. A very nice island that must be worth quite a bit.

report this

Pertan

Jun 09, 2012 at 18:33

Yes indeed, desperate measures for desperate times, although since we seem to be in an asset bubble, such a fire sale can hardly fetch the best values for such tourist islands with limited tourist revenues, hostile local inhabitants and not much else.

report this

Robert Hutchins

Jun 09, 2012 at 19:10

Pertan:

I think you might find Rhodes would be quite enthusiastic, but Mallorca might need a bit of bribing. Say, a million each - chicken feed now-a-days.

Of course, the UK has quite a number of islands that could go up for auction. Maybe start with the Falklands? Then Ascension, Isle of Wight, Canvey Island. I think France might need some sales soon too, so they could start with Corciga. Italy might flog Sicily - the American Mafia might like that one and the rest of Italy would be delighted to see it go. I´m not sure what Ireland has in the way of islands, but the UK might be persuaded to buy it back. Payment by cheque, of course.

report this

Pertan

Jun 09, 2012 at 19:24

Who will buy them? goes without saying that in any case they will be bought with borrowed money! with the islands as collateral!

report this

snoekie

Jun 09, 2012 at 21:08

Lets face it, where do you get your figures from?

Last I saw, French debt was 79% of GDP and Germany roughly the same. That was months ago. Likely to be higher and France is going to have to borrow a lot more (or substantially increase tax) to deliver to the pampered workers the reduction of pension age, with the increased future liability, starting almost immediately with pensions having to be paid to more, and for longer.

Heavier demands on French employers (to fund the pensions for more and longer) and an increased liability for the tax payers as they are being required to carry more people for longer.

It may help the unemployment figures as the retirees places will have to be filled, well perhaps not all of them.

Are French companies able to easily relocate their headquarters abroad? I don't know, but I suspect that the French being the French, they will have put many an obstacle on this course of action.

Time to collapse the house of cards.

report this

Jack Belfitt

Jun 09, 2012 at 21:43

By Gum! What a saga! I wonder if any politicians with influence just happened in on this extended and erudite discourse. If so, I do feel that the collected wisdom must have covered most every aspect of this sorry affair. I feel that now, all I can do is hope and pray, having even then not much faith in either. And Robert,, yes, I did read it and have found the contributions to be intelligent and interesting.

report this

Lets Face It

Jun 09, 2012 at 22:22

Snokie, figures are from Wikipedia and I believe they are fiscal year 2010-2011.

I agree they seem way out of date but that's just how quick things are changing.

By March 2012, UK External debt had risen a further $22billion to $10.22 trillion and external debt was 66% of GDP.(Source : Office of National Statistics) whats more worrying is that if you add the money that the banks still owe then the GDP ia actually 147% of GDP and the total debt becomes $2.3 trillion.

report this

Bhavesh Sutaria

Jun 10, 2012 at 00:32

The generals will carry on with the ever increasing pass the debt parcel game, and let's print more money game ....

Fast forward 5 years ... another 15 trillion on US debt total, cost of wars, huge interest & social security payments, bank rescue packages, etc. How much debt can we carry, before the house of cards comes crumbling down ?

Buy gold at next bottom of short term cycle, to avoid personal doomsday, and as one writer says, stock up on foods & weapons of self defence, as social systems break down & mass population resorts to savagery to survive.

report this

Robert Hutchins

Jun 10, 2012 at 10:01

Only indirectly connected with the main topic, (but then that was temporarily resolved yesterday), I wonder that no-one raises objections to trade on the present basis with China. They play the game with different rules. Under normal rules, if your companies do well then wage go up and if you export a lot more than you import your currency also goes up. In the case of China, that only happens to a very limited extent as they keep control of wages and of their currency. Unless we reduce wage rates to Chinese levels, which seems impractical, they will little by little be able to take over the west. It was OK when our imports from China were mainly plastic ducks and noodles, but that is no longer the case. Apart from lack of wage bargaining and currency controls, they also play the game by different rules in other respects. For example, there seems to be plenty of evidence that they are quite willing to "steal" technology and don´t have the same attitude to patents as the west does. It´s like playing poker with someone who cheats all the time - and you pretend that you haven´t noticed.

report this

Pertan

Jun 10, 2012 at 12:31

Robert Hutchins

There is much pressue on China to revalue their currency which they have kept pegged to the US$. They are allowing some appreciation, however the chinese economy is very different to the western economies, their definition of middle class and the wealthy represent probably no more than 10-15% of the population. In order to get more of the population at a basic standard of living, they centrally manage the economy, managing credit available for housing,small businesses and interest rate policy, at the same time watching inflation carefully. They are trying to be less dependent on exports and more on domestic consumption, at the same time watching basic staples and housing prices (risk of a bubble). Revaluing the currency puts more pressure on inflation as imports become cheaper. Its a balancing act and challenging, there are no quick solutions. I do agree about copyright infringements.

report this

Robert Hutchins

Jun 10, 2012 at 15:44

Pertan:

We are getting around on this thread!

My comment was prompted by something I read recently. When all the European money started flooding into Spain, for building motorways, high-speed trains, airports and etc., the Spanish government gave all the contracts to Spanish companies. As a consequence of this, Spanish construction and infrastructure companies are the largest in Europe and they have become increasingly big players on the world market. They are, in fact, coming to depend on world markets, as European money coming into Spain drops and austerity bites. But they are now losing contracts to Chinese companies, due, in part, to political pressures and, in part, to China undercutting them all the time.

I think that unless and until China becomes a fully-fledged democracy, competition from them will not be fair competition. (I know - I know - how do I define "fair"?)

It seems strange to watch an increasing number of industries in the west having problems with Chinese competition, while we wait for the dictators in China to change their policy.

Meanwhile, I´m doing my bit to help Greece out. I´m expecting confirmation of the 10 billion euro loan I´ve asked for from the ECB and, based on this, I´ve been negotiating to buy the Acropolis. They want 5 billion, I´ve offered half a million. I´ve pointed out to them that it´s bigger than I really need, I´ve got to fix the roof, put in a new front door, install double glazing. I want to paper (the inside) with Regency stripes and, maybe, get rid of some of those unecessary columns. They are very insistent that I keep the name, but I think "Acropolis" is a silly name for a house. Maybe we´ll be able to compromise on that. Acropolis Nook is a good alternative.

report this

Pertan

Jun 10, 2012 at 16:26

Robert Hutchins,

Surely there are parallels to be drawn in the way the spanish government " helped" it construction companies with who knows what subsidies and export guarantees, they can hardly complain if some other country is doing the same. Trouble is there is no level playing field, every nation does what it can. China is benefiting from cheaper labour, many EU nations are no longer competitive due to their prior folly. They cannot need compete on price but need value added goods and technology in order to compete. Also the smarter companies started operations in China in order to get a foothold there. I don't completelty agree with making China a scapegoat for everything, not all nations are necessarily suited to a full western style democracy, that will be an evolution process. Anyway who says free market capitalism is the best sysyte! with its incessant need to grow till this planet's resources are depleted

report this

Robert Hutchins

Jun 10, 2012 at 17:16

Pertan:

I don´t suppose we disagree that much.

I don´t know that Spanish companies did get subsidies from the Spanish government for overseas business - but they did benefit from the flood of EU money for airports, motorways etc that were not needed and also (my assumption) from always getting the contracts in Spain.

Dictators usually say that their nation is not yet ready for democracy or is working its way to democracy or is already democratic. As for protecting the environment and the planet´s resources, I think democracy is far more likely to achieve that, through popular pressure. See how far you get with China, pointing out that they release an awful lot of noxious fumes into the atmosphere - and, if you´re Chinese you´d better say nothing at all. It´s a function of governments to control how their businesses operate - so, no-one´s advocating cut-throat all-out capitalism.

As for the smarter companies getting a foot-hold in China, that will last only as long as the Chinese let it. They are totally unprotected by international law and it´s just a matter of time before BMW (say) find themselves competing with BMW clones at half the price.. Operating in Russia seems to be like dealing with mafia thugs and China is different only in that it is a little more subtle. I don´t see any good reason for letting the Chinese gradually take over western business, because they play by different rules.

We are actually way beyond the boundaries of such little knowledge as I may have on these particular topics. It´s also time I got down to what I should have been doing this morning!!

report this

Rose G

Jun 11, 2012 at 15:54

We recently travelled via Madrid to South Africa - Madrid boasts a spanking huge, brand new satellite terminal, with top of the range decor, but has very few passengers actually using the facilities there. If this elephant is anything to go by, together with all their other building projects, no wonder they are in trouble, big trouble.

report this

Bhavesh Sutaria

Jun 11, 2012 at 20:11

The West needs to wake up to the culture in China, Asia, USSR and the rest of the world. The game is to get resources, no matter how its done. That's it. The world has never been a fair place. Time to wake up..

The West and especially the UK has choked & blinded itself with silly democratic laws & theories, and ignored the reality.

The business & patent laws in emerging markets are unenforcebale. We only get business as long as they wish, and once they get critical size & momentum, they will kick us & do their own thing. That is the game.

Robert makes a point with the Chinese as an example, but it applies to all emerging markets. The US has millitary & cash to force huge export sales, so does not care much, neither do the Europeans who seem to play by different rules. The UK seems to be the only dummy on the block obeying every law, suffers, and is loved by all - just look at the illegal immigrants coming here to take advantage & suck us dry !!

The theory of economics & the reality of life are different things.

Allowing cheap imports allows China & others to export their poverty to us in the long run, by decimating our industries & jobs, and reducing our standards, while they develop faster with know how, tech, and innovations exported largely from the West. Only finance and millitary strength of the West keeps it going strong & in control - for the time being.

Its debatable whether we gain nett from exporting to in large scale, once social security benefits paid or unemployed etc are calculated.

In my view, raising import duties is an essential tool to protect one's own economy, but it seems the UK & West are losing this game fast. Partly by spoiling its populations with teh notion that they have a right to buy any cheap goods & thus have them manufactured abroad in volume.

The West, for short financial gain will lose in the future. China by having critical cash momentum of trillions, already dictates strongly. Other countries rich in natural resources, e.g. Russia, Middle East, Brazil, etc, already have their own agendas, and quite rightly so. Everyone looks after themselves first, but the UK especially seems to have lost the plot.

Add to this mix, the hot potato social issues & political consequences of rapidly declining Christian populations relative to other populations in Western countries, there is a real danger that the Trojan horse economic takeover & impoverishment of the West is only a question of time.

report this

Robert Hutchins

Jun 12, 2012 at 01:48

Bhavesh: You certainly paint a gloomy picture, but I can´t disagree with most of it. Do you know that even within the EU, the UK is the country which is most up to date on payments to it? That is despite being one of the countries that is most sceptical about it! (That, at least, was the case several years ago, when I last saw the figures.)

It is also the only one that allows foreign companies to come in and take over major British ones without a murmur. The other day, I made a list of 100 major British companies from 30 years ago that have all gone. ICI, traditionally described as "the bell-weather (whatever that is) of British industry is now Dutch. More recently, Reuters, the world´s largest news agency, is now Canadian - Cadburys, gone to the Americans, a year after a public outcry in the USA made them pull out of taking over Hersheys - Pilkingtons, the world´s largest glass company, that invented the process that all glass makers worldwide use, is now a Japanese company - Abbey National and Alliance and Leicester are now Spanish owned - all the significant merchant banks have gone and most of the large stock brokers. The list goes on and on. Successive British governments seem to think that it´s fine to gradually lose all the important British companies. No other country that I know of operates that way.

As for China and Russia, I believe we should insist they play by the rules, as they claim they do, or we stop importing from them. Likewise, every country should be coerced into doing the things that must be done to protect the planet, because the way things are going a time will come in the not too distant future when it will have become uninhabitable.

It´s nearly three in the morning where I am, which is probably why it seems that the UK is heading towards catastrophe and everything is doom and gloom.

report this

Bhavesh Sutaria

Jun 12, 2012 at 02:17

The clever people play smart, try to increarse their wealth to survive when meltdown happens .... the desperate ones flee to US or Australia ... :)

report this

Bhavesh Sutaria

Jun 12, 2012 at 02:18

,,, typo ... increase their wealth ...

report this

Robert Hutchins

Jun 12, 2012 at 04:44

Bhavesh: Hey - you must keep the same funny hours that I do!

I forgot to mention the UK utility companies that are now foreign-owned. A German company tried to take over a big Spanish electricity generator three or four years ago. Guess what - they were blocked. I´d better not start on what happened to the British fishing industry - suffice to say, that most of the fish in British waters are now caught by Spanish boats. Using, so someone told me, 10km.- long nets.

I´m not convinced by the meltdown scenario - and were I to flee - though, come to think about it, I did that long ago as I´ve lived most of my life outside the UK and wasn´t even born there - I´d add Canada to your destinations.

report this

Bhavesh Sutaria

Jun 12, 2012 at 09:49

Yeah, I keep funny hours trading the currency markets, trying to make a buck for the rainy meltdown days ...:) And meltdown is only a few years away , the US debt will never be repaid, there's no political will & it grows each year - that is the real white elephant, not the EU problems.

When the markets accept this reality in a few years ( remember, the US debt grows, last year it grew $1 trillion ), the scale of problems will be global & immense. Unless they manage to perform mass trickery & postpone & dump the debt onto the next generation to deal with !

People think its impossible, the dollar is safe. But is it ?

Look at how they've cocked it up. Did you ever think Spain, Ireland, Greece would need a bailout ? Did you ever think Northern Rock would have a run on it ? Did anyone forsee the huge property crash in US ? The basic rules don't change. Spend too much, you're in trouble. The bankers have not helped by hyping up property values with cheap loans, exporting the debt worldwide by collaterising & re-selling it, and every country holds crap debt on its books, which they know is a write off. Its just a giant overdraft in layman's terms which no one can repay. But people have become so used to debt, they have become numbed. For example, the US paid $227 bn interest on its public debt in 2011. How long can such nonsense carry on ? Most of the pubic are blissfully ignorant !

Regards the British companies, I totally agree. The UK government is a wimp, and like a rouge uncle or an under endowed man, it's happy to be cuckolded, and sell its national assets to foreigners, and we the UK public pay with increased prices, loss of assets and strategic control. I wonder if its the bankers who are driving politics, as money always does, who hand in glove with the government pushed for this lenient regime, since each corporate sale raises huge fees & interest in loans to finace such deals, and enables bankers to make tens of billions of profits to enjoy.

report this

Robert Hutchins

Jun 12, 2012 at 11:15

Bhavesh: To look on the bright(er) side, you´ve probably seen the Goldman Sachs forecast for 2050?

Estimated GDP in 2050

GDPs in trillions (US)

1. China $70.710

2. USA $38.514

3. India $37.688

4. Brazil $11.366

5. Mexico $9.340

6. Russia $8.580

7. Indonesia $7.010

8. Japan $6.677

9. UK $5.133

10. Germany $5.024

11. Nigeria $4.640

12. France $4.592

Estimated GDP per capita in 2050

Rank Country GDP per capita (in USD)

1 United States 91,683

2 South Korea 90,294

3 United Kingdom 80,234

4 Russia 78,576

5 Canada 76,002

6 France 75,253

7 Germany 68,253

8 Japan 66,846

9 Mexico 63,149

10 Italy 58,545

11 Brazil 49,759

12 China 49,650

Actually, despite last night´s pessimism, I wouldn´t bet against the UK long term.

I´m intrigued by your currency trading! I keep getting lots of emails about this. I´ve successfully lost a lot of money on the stock market over the years, particularly on options - and I´ve been tempted recently by some of the forex stuff I´ve received. Is that how you started - and, if so, does it work??

report this

Bhavesh Sutaria

Jun 12, 2012 at 12:02

Yeah, we in UK only got brains & finance to beat them with !

Or maybe I should go to my roots and emigrate back to India, or get a green card and join the Yanks in pursuit of the dollar and 401K plans ...

Currency trading, very high risk / high reward, be prepapred to lose whatever you play with though once you get clever that should not happen, 10% to 50% per month, takes time & dedication to learn, initially lose money learning, not something which will hit jackpot overnight - email me privately on sbpinner at gmail dot com, its an off topic item best discussed privately

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire guide to investment trusts

In association with Aberdeen Asset Management

Fund managers from Standard Life Investments quizzed on investment trusts


What can SLI bring to the table for those who want to put their money into investment trusts?

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Read more...

Serious Fraud Office launches Tesco accounting probe

by Daniel Grote on Oct 29, 2014 at 15:43

Sorry, this link is not
quite ready yet