Sunday, February 17, 2013

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Rebalancing in Spain Stage Two: 20,000 Iberia Airline Workers to Strike, 1,222 flights Cancelled in First five Days

Posted: 17 Feb 2013 06:44 PM PST

The "rebalancing" in Spain continues along the lines I have suggested, not as suggested by economists and those who think there is guaranteed future of the eurozone.

Via Google translate from El Economista, please consider Strike by Iberia Starts Monday
The nearly 20,000 workers are called from Iberia to strike on Monday in the first week of the 15 days of strikes called by unions CCOO, Asetma, USE, SITCPLA and CTA-Flight, which has forced airlines group to cancel a total of 1,222 flights in its first five days.

The 24-hour strikes, affecting ground staff and cabin crew (TCP), but which are called all employees of the airline, will be held from Monday 18 to Friday 22 February, from Monday 4 to Friday 8 March and Monday 18 (a public holiday in some ACs) to 22 next month. The pilots' union will join the strike in March.

Furthermore, the six unions representing 93% of the staff have organized concentrations for 18 and 22 February in all Spanish airports, coinciding with the start of the 15-day strike.

The Minister of Development, Ana Pastor, reiterated on Friday to unions and the management of Iberia make an "effort" to avoid the strike.

At a meeting in Development with representatives of both sides, Pastor said the government has "no authority" to intervene in the management of a private company, but said he does have the "legal obligation" and "direct responsibility" for ensuring connectivity in Spain, so it would intervene in the event that gave a "serious disruption of transportation", as it has done on other occasions.

Iberia has insisted that the 15-day strike "worsen" the situation of the company, so it has appealed to the groups to call off the strikes, considering that they only hurt customers, reputation and all his employed.

The airline has launched a contingency plan to cater to all passengers during the strike days and has flexible rates to facilitate the exchange or refund.

It has also reached agreements to protect customers with other airlines in order to have more choices, and has taken shape that has agreements with Oneworld alliance members, along with about a dozen companies.

Travelers concerned may Serviberia phone call 902 400 500 or 900 100 480 in Spain to change your flight or request a refund if the change is not interested.
Rebalancing the German Way Cannot Work

I am not taking the side of the union. Rather, I am pointing out that rebalancing the German way, by forcing still higher unemployment in Spain cannot and will not work.

At some point, and quite frankly I would have expected it by now, there is going to be mass resistance to efforts to balance the budget and productivity differences on the backs of workers.

Spanish Debt Grows by €146 Billion

I like working with Dough Short at Advisor Perspectives. He took my post Spanish Debt Grows by €146 Billion, Largest Ever Recorded; Debt-to-GDP Highest Since 1910 and added a couple of charts to it, stating in an email "I couldn't resist adding a postscript".

Here are the charts and commentary from Doug Short's reposting of Spanish Debt Grows by €146 Billion
Postscript from dshort: Here is an updated chart that I last posted about ten months ago highlighting the disconnect between the S&P 500 and Spain's IBEX 35. Fed policy has certainly been more successful in boosting US equities than the various strategies in Spain despite EU support. The divergence starts at approximately the date of Chairman Bernanke's speech at the Fed's 2010 annual symposium in Jackson Hole, Wyoming (August 27, 2010). Bernanke strongly hinted at the forthcoming Federal Reserve intervention that was subsequently initiated in November of 2010, namely, the second round of quantitative easing, aka QE2.



click on chart for sharper image

Here is a closer look at the correlation between the S&P 500 and Fed policy.



click on chart for sharper image
Rebalancing the Hard Way

Unemployment in Spain is over 26%. Youth unemployment is over 50%. Spain's budget deficit is still large and growing even though taxes have increased.

Rebalancing the German Way (the hard way), will require still  higher levels of unemployment and still lower wages, perhaps for a decade.

I suggest the patience of the Spanish population cannot possibly last that long.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Spanish Debt Grows by €146 Billion, Largest Ever Recorded; Debt-to-GDP Highest Since 1910

Posted: 17 Feb 2013 11:21 AM PST

Proof there is no rebalancing in Europe is easy to find. For example, El Pais reports Spanish Debt Grows by €146 Billion.

What follows is a Mish-modified translation of the above Google-translation.

Key Points

  • The public debt exceeded €882 billion at the end of 2012
  • Debt Grew by €146 Billion in one year
  • The increase in the first year of Prime Minister Mariano Rajoy is the largest ever recorded
  • Debt-to-GDP is highest since 1910 
  • Interest expense is at record high

The Government and the Bank of Spain debt figures are chilling. Government debt broke records in 2012. In the first year of the Government of Mariano Rajoy, debt skyrocketed to €882 billion, a one year increased of €146 Billion. Never in the economic history of Spain's general government debt had increased so much in a single year. In five years, the debt has increased by €500 Billion, Debt is one of the major drags on the recovery of the Spanish economy.

Debt to GDP



The increase in public debt in 2012 is the equivalent of more than 14 percentage points of gross domestic product (GDP). €882 billion is equivalent to between 83.5% and 84% of GDP. The government had forecast a ratio of 79.8% for the 2012 budget last July, but has since revised the figure upwards. In relative terms, debt-to-GDP is at highest debt level in more than a century, particularly since 1910, when the Spanish debt stood at 88% of GDP, according to a historical IMF data.

Despite cuts and tax increases, the government of Mariano Rajoy has been unable to significantly reduce the gap in the public accounts.

Skyrocketing Public Debt




click on chart for sharper image

Outstanding liabilities will probably exceed 100% of GDP at the end of the year, and there are more than €100 billion of a government debt in the hands of others (Social Security mainly). The €882 billion figure also does not include about €60 billion of debt owed by public enterprises.

A Troubling Context

To Emilio Ontiveros, president of Financial Analysts International (AFI), "the main problem is the payment of interest, because it is the most unproductive spending item possible and occurs in a country that has had to cut back in other areas and need to recover growth."

Spain had never spent so much money to pay only the interest on its debt: €38.66 billion. Financial expenses for the first time in history exceeded staff costs. "If you do not grow, you cannot pay your debts," said Ontiveros, who argues that Spain should have requested the bond purchase program prepared by the Bank Central Bank (ECB) to cut interest paid on Spanish debt markets, a mechanism for which the Government should ask before rescue its European partners. "The corollary of this is that Spain needs urgent measures aimed to reduce this expense," he says.

The average interest paid by the state's debt is 4.1% with an average maturity of 6.1 years, but this level of return that investors demand may grow by the economic downturn. Despite the truce that markets have given Spain, political tensions rose in Spain and Italy .

Jose Carlos Diez, chief economist Intermoney, warns that Spain fails in all the variables that serve to stabilize the debt: its economy does not grow, it pays a high interest rate and has primary deficit (prior to payment of interest on the debt). "This dynamic eventually leads to non-payment," he reflects.

End-Transalation

Note that last comment by Jose Carlos Diez, chief economist Intermoney "This dynamic eventually leads to non-payment."

Indeed!

More on Non-Rebalancing

Many economists see signs of stabilization. I see signs of delusion in economists.



Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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