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Thoughts On Spain's Pain

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http://www.telegraph.co.uk/money/main.jhtm...6/cnspain16.xml

I was quite startled by this article. Can I ask for the opinion of others more learned than I on what the potential fall out may be of the Spanish bank getting close to collapse?

Could it actually collapse?

What would it mean for the Euro?

What would it mean for other countries with similar low reserves and high deficit?

Thanks.

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http://www.telegraph.co.uk/money/main.jhtm...6/cnspain16.xml

I was quite startled by this article. Can I ask for the opinion of others more learned than I on what the potential fall out may be of the Spanish bank getting close to collapse?

Could it actually collapse?

What would it mean for the Euro?

What would it mean for other countries with similar low reserves and high deficit?

Thanks.

I don't care about any of that. If spain collapses I'm buying a holiday home pronto over there!

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Over the past two months the Banco de España has sold off 80 tonnes of gold, flooding the world market with enough bullion to dampen the usual spring rally.
It appears the bank has been draining the reserves to help finance the current account deficit, which has ballooned to 9.5pc of GDP, reaching €8.6bn in January alone.

"The current account is completely out of control," said Alberto Mattelan, an economist at Inverseguros in Madrid.

Germany can't carry them!

Edited by Ash4781

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Germany can't carry them!

This is quite a seriously frightening article. Germany has been through a lot of pain restructuring its economy but other Eurozone countries have not. They converted their currencies at very favourable rates into Euro - a political fudge used to sell the deal. Germany bore the brunt of that by going in at a seriously overvalued rate. Interest rates have bene far too low in the Eurozone for economies which has led to massive housing booms (e.g Spain and Eire) and far too high for Germany which has supressed house prices and caused unemployment too.

Now the initial boom of Euro entry has disippated the Spanish/Eire/France/Italy/Portugal and other weaker Eurozone economies are beginning to feel that the Euro is a burden and are running big current account deficits (i.e imports exceed exports) because they are uncompetitive. Wage rates in these economies are far too high and have to fall. The big problem of a common exchange rate and common interest rate is that the old option of lowering rates and devaluation of the currency is no longer an option. Thta is why the ECB is coming under such huge criticism by Sarkozy in France because it is forcing him into making politically unpopular wage restraint and economic restructuring or face high unemployment. Spain and other will face the same choices

The comment at the very end of the article is a very good summary of what is to come:

The government cannot devalue its way out of trouble, so it will have to deflate. "Pain seems to be on Spain's doorstep," he said.

All of the pain of economic restructuring has to now fall on wage rates. Spain and others have to reduce wages to the levels in the new accession states and by extension lower wage rates mean much lower house prices. The alternative is to abandon the Euro and reintroduce local currencies with an immediate devaluation which is most likely to happen when the reserves of the likes of Spain are completely depleted :unsure:. Oh dear!

Edited by Wad

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Germany can't carry them!

The EU will bail them out.

Italy has been on the edge of financial ruin for years now....property prices continue to rise unabated there. People just get on with it because they know the EU wont let anything happen.

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This is quite a seriously frightening article. Germany has been through a lot of pain restructuring its economy but other Eurozone countries have not. They converted their currencies at very favourable rates into Euro - a political fudge used to sell the deal. Germany bore the brunt of that by going in at a seriously overvalued rate. Interest rates have bene far too low in the Eurozone for economies which has led to massive housing booms (e.g Spain and Eire) and far too high for Germany which has supressed house prices and caused unemployment too.

Now the initial boom of Euro entry has disippated the Spanish/Eire/France/Italy/Portugal and other weaker Eurozone economies are beginning to feel that the Euro is a burden and are running big current account deficits (i.e imports exceed exports) because they are uncompetitive. Wage rates in these economies are far too high and have to fall. The big problem of a common exchange rate and common interest rate is that the old option of lowering rates and devaluation of the currency is no longer an option. Thta is why the ECB is coming under such huge criticism by Sarkozy in France because it is forcing him into making politically unpopular wage restraint and economic restructuring or face high unemployment. Spain and other will face the same choices

The comment at the very end of the article is a very good summary of what is to come:

The government cannot devalue its way out of trouble, so it will have to deflate. "Pain seems to be on Spain's doorstep," he said.

All of the pain of economic restructuring has to now fall on wage rates. Spain and others have to reduce wages to the levels in the new accession states and by extension lower wage rates mean much lower house prices. The alternative is to abandon the Euro and reintroduce local currencies with an immediate devaluation which is most likely to happen when the reserves of the likes of Spain are completely depleted :unsure:. Oh dear!

Whilst I agree with your post on most points, and it is an excellent post, I do think the scenario of reverting back to local currencies is unlikely.

Spain is like a peasant farmer who's Uncle Germany and Auntie France have cleaned him up and put him in a nice tailored suit for a posh dinner with friends. The only problem is that the brushed up farmer is now at the Dinner table openly breaking wind and eating with his hands.

Spain was more or less a third world country 25 years ago. Outside of the City and Coastal areas your average Spaniard is a fairly uneducated peasant (I am generalising here for the sake of the post). For these guys the euro has been a burden because the cost of living has risen dramatically whilst immigration has taken many of their unskilled jobs and kept wages low. Communities have been running purely on grants, subsidies, property and land sales to cope with this price inflation. With this income gone (property boom over/grants going to "new member states") the price of everything will have to deflate otherwise people will literally starve. I see the EU getting involved to soften the blow and they will fight tooth and nail to make the Euro work. If you think of Europe as the US then the US has states within it similar to Spain. They prop these states up with handouts and grants and I dont see why Europe will be any different when it comes to Spain and the EEuropean states for that matter. France and Germany will start to see the downside of their socialist utopia. In the meantime all the Brits will be enjoying 10p a pnit beer and 50p Tapas again on the Costas....Happy Days.

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http://www.telegraph.co.uk/money/main.jhtm...6/cnspain16.xml

I was quite startled by this article. Can I ask for the opinion of others more learned than I on what the potential fall out may be of the Spanish bank getting close to collapse?

Could it actually collapse?

What would it mean for the Euro?

What would it mean for other countries with similar low reserves and high deficit?

Thanks.

Been following this thread since it started. http://britishexpats.com/forum/showthread....operty+in+spain

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Been following this thread since it started. http://britishexpats.com/forum/showthread....operty+in+spain

Thats a very interesting thread. Like all threads there are people talking BS and others talking complete sense.

My general view is that location is key. Price rises have stalled and hopefully will drop by about 25% in some areas. But in the nice areas I see increases continuing. If buying in Spain for investment only then forget it. If you are looking for a holiday home or to retire then just make the plunge and make sure you do your homework on teh areas.

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Who's going to be fool enough to buy in any area when the market is crashing to it's knee's?

What ppl do not take inot account is the nice areas have risen in price tenfold hence are also ripe for correction as in the case of this crash and every other crash that occurs.

Last time in the UK ppl said London will be imune...was it ******....again I hear the same old BS this time.....anyone touching Spain right now needs a serious checkover.

Thats a very interesting thread. Like all threads there are people talking BS and others talking complete sense.

My general view is that location is key. Price rises have stalled and hopefully will drop by about 25% in some areas. But in the nice areas I see increases continuing. If buying in Spain for investment only then forget it. If you are looking for a holiday home or to retire then just make the plunge and make sure you do your homework on teh areas.

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As I said on a previous thread - where people were arguing that a property crash in Spain wouldn't hurt the Spanish - a crash would devastate the country. The sun may keep shining but some very serious issues will need to be addressed.

As for comparisons with Italy, we are talking totally different ball games here. The economies of both countries are entirely different.

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Spain was more or less a third world country 25 years ago. Outside of the City and Coastal areas your average Spaniard is a fairly uneducated peasant (I am generalising here for the sake of the post). For these guys the euro has been a burden because the cost of living has risen dramatically whilst immigration has taken many of their unskilled jobs and kept wages low.

France and Germany will start to see the downside of their socialist utopia. In the meantime all the Brits will be enjoying 10p a pnit beer and 50p Tapas again on the Costas....Happy Days.

I would not go that far but I would say that outside the main cities of Spain the economy is very very unproductive as in many part of the UK. I do agree that in those regions social welfare handouts or public sector jobs are the main sources of income. The better educated and younger people have migrated to the cities - again like the Uk to seek out better employment opportunities.

I think the original point of the thread was that Spain as a whole is running down its foreign reserves to finance its trade deficit. I am not sure that Germany and France will be willing to act as rich Uncle and Aunt - their own people will demand that their government acts to protect them againstthe effects of gloabal competition and tight monetary policy impose dby ECB first.

Still - I do agree with your point about devaluation. I remember Spain (and Portugal) back in the late 70s and early 80s thay were regarded as emerging markets then by London stock market investors. I suspect we may be back there again if the Euro collapsed. The sad part is that Spain, Portugal, France Italy have huge amounts to offer in terms of the resourcefulness of their populations as well as being culturally very rich - if they do collapse they will be great places to invest.

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From the vague information I have, and from talking to retired German expats in Spain, many are selling up due to tax purposes and the disadvantages that have arisen from transfering their pensions from Germany to Spain, anyone know any more about this?

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http://www.nzherald.co.nz/section/2/story....jectid=10440482

He is either the luckiest man alive or - just perhaps - a fraudster with a few inconvenient secrets to hide.

But Juan Antonio Roca told a disbelieving judge he gained his personal fortune of £1.7 billion ($4.6 billion) by winning the lottery - 80 times.

Roca was appearing before a court to explain allegations the former head of urban planning in Marbella, had been the brains behind a £15 million bribery and embezzlement ring.

He is said to have controlled a scam in which councillors took huge backhanders from property developers and in return passed illegal building permissions in the Marbella area.

The case has led to 100 arrests, among them two former mayors, a number of councillors, developers, lawyers and a singer who is the darling of the prensa rosa - Spain's equivalent of the tabloids. Hundreds of homes are said to be illegally built and could face demolition.

Would they demolish ?

Edited by Ash4781

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Who's going to be fool enough to buy in any area when the market is crashing to it's knee's?

What ppl do not take inot account is the nice areas have risen in price tenfold hence are also ripe for correction as in the case of this crash and every other crash that occurs.

Last time in the UK ppl said London will be imune...was it ******....again I hear the same old BS this time.....anyone touching Spain right now needs a serious checkover.

No your right, nobody would be foolish enough to invest in the Spanish Property Market at the moment. On the other hand some people are looking for a home or holiday home and bargains can be found.

Unbelievably, nice areas can still be found where the prices are a lot lower than they should be. Now im not saying these areas will be immune from the crash but they will be a lot less affected and if you are in it for a home then there is little point waiting around

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No your right, nobody would be foolish enough to invest in the Spanish Property Market at the moment. On the other hand some people are looking for a home or holiday home and bargains can be found.

Unbelievably, nice areas can still be found where the prices are a lot lower than they should be. Now im not saying these areas will be immune from the crash but they will be a lot less affected and if you are in it for a home then there is little point waiting around

When one find plenty of cheap rental, there is no reason to rush buying. And that takes any appetite for speculation and also allows price to stabilize/fall. Do not try to find the bottom of the market, it will come to you...

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Spain is like a peasant farmer who's Uncle Germany and Auntie France have cleaned him up and put him in a nice tailored suit for a posh dinner with friends. The only problem is that the brushed up farmer is now at the Dinner table openly breaking wind and eating with his hands.

!! Tell that to my friend Juan....

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This is quite a seriously frightening article. Germany has been through a lot of pain restructuring its economy but other Eurozone countries have not. They converted their currencies at very favourable rates into Euro - a political fudge used to sell the deal. Germany bore the brunt of that by going in at a seriously overvalued rate. Interest rates have bene far too low in the Eurozone for economies which has led to massive housing booms (e.g Spain and Eire) and far too high for Germany which has supressed house prices and caused unemployment too.

Now the initial boom of Euro entry has disippated the Spanish/Eire/France/Italy/Portugal and other weaker Eurozone economies are beginning to feel that the Euro is a burden and are running big current account deficits (i.e imports exceed exports) because they are uncompetitive. Wage rates in these economies are far too high and have to fall. The big problem of a common exchange rate and common interest rate is that the old option of lowering rates and devaluation of the currency is no longer an option. Thta is why the ECB is coming under such huge criticism by Sarkozy in France because it is forcing him into making politically unpopular wage restraint and economic restructuring or face high unemployment. Spain and other will face the same choices

The comment at the very end of the article is a very good summary of what is to come:

The government cannot devalue its way out of trouble, so it will have to deflate. "Pain seems to be on Spain's doorstep," he said.

All of the pain of economic restructuring has to now fall on wage rates. Spain and others have to reduce wages to the levels in the new accession states and by extension lower wage rates mean much lower house prices. The alternative is to abandon the Euro and reintroduce local currencies with an immediate devaluation which is most likely to happen when the reserves of the likes of Spain are completely depleted :unsure:. Oh dear!

.....possibly the beginning of the end for the Euro........

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.....possibly the beginning of the end for the Euro........

You know what, when i read this article first, that was my thought.

I'm really confused as to how this could pan out. There is no opportunity to devalue a currency that is fixed by another central bank.

There is no opportunity to raise or lower interest rates, they can't increase money supply.

If the housing market in Spain tips (as it could well do) people are going to be on the street.

If it did tank and the central bank with it, the government would have to pull out of the Euro or face a revolution. If there was a revolution, Spain would be out of the Euro anyway.

They are in exactly the same position as the UK are now, they need to keep the houseing market from tanking. the fact is they can do duck all about it.

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This won't spell the end of the Euro. The Eurozone will face and survive bigger challenges than this.

Politics will ensure it survives not any economic common sense.

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Like all threads there are people talking BS and others talking complete sense.

Is that using the usual HPC criteria? If its pro crash then its true, if its pro inflation then it must be BS ;)!

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