A New High in Spain's Unemployment Rate
Youth unemployment in Spain now exceeds 55%. This is an explosive situation and that may be putting it mildly. What are the idle young people that see no future for themselves going to do? Will they just sit still and meekly collect whatever paltry handouts the insolvent Spanish government can still afford to give them? We somehow doubt it. We expect unrest and demonstrations in Spain to escalate further this year.
We wonder what will happen once it turns out that the government will miss its deficit targets by what is likely to be a huge margin. The EU with its 'fiscal pact' rules will have to turn the thumb-screws even further when that happens, and it is actually doubtful that the plan to let the ECB finance Spain's government by starting the OMT program will go as smoothly as the markets apparently expect. After all, Spain will first have to knuckle under and adhere to an IMF and ESM imposed new and presumably even more severe austerity scheme. Meanwhile the government of prime minister Rajoy is already in all sorts of trouble over burgeoning corruption allegations as Mish recently pointed out.
“Spain's unemployment rate soared to its highest level since measurements began in the 1970s as a prolonged recession and deep spending cuts left almost 6 million people out of work at the end of last year.
Spain's unemployment rate rose to 26 percent in the fourth quarter of 2012, or 5.97 million people, the National Statistics Institute said on Thursday, up from 25 percent in the previous quarter and more than double the European Union average.
"We haven't seen the bottom yet and employment will continue falling in the first quarter," said Citigroup strategist Jose Luis Martinez. Spain sank into its second recession since 2009 at the end of 2011 after a burst housing bubble left millions of low-skilled laborers out of work and sliding private and business sentiment gutted consumer spending and imports.
Efforts by Prime Minister Mariano Rajoy's government to control one of the euro zone's largest deficits through billions of euros of spending cuts and tax hikes have fueled general malaise, further hampering demand. When Rajoy took office in late 2011 there were 5.27 million jobless in Spain.
The economic downturn put an average of 1,900 out of work every day through 2012 and with the recession expected to last at least until the end of 2013, net job creation is unlikely this year. Joblessness has been particularly acute for Spain's youth, with 60 percent of people under the age of 25 unemployed in the fourth quarter.
In the fourth quarter, the economy shrank at its fastest pace since the recession began, the Bank of Spain said on Wednesday, dragged down by a steep drop in private consumption due in part to a September VAT hike and public wage cuts.”
Wage cuts would pose no problem if not for the inflationary policy of the ECB, which keeps prices high. It goes without saying that raising taxes in the face of an economic depression is an extremely bad idea. However, this is how 'austerity' generally works in euro-land. The burden of government is not reduced at all, instead it is increased even further. It is apparently fine for the European political class when the private sector shrinks, just as long as Leviathan's size remains unchanged. That this cannot possibly work out seems not to have occurred to anyone yet.
Unemployment in Spain is now at the highest level since records began in the early 1970s and exceeds even the unemployment rate of depression-wracked Greece:
Euro area unemployment rates compared: Spain holds a sad record – click for better resolution.
NPLs Continue to Rise
Non-performing loans at Spain's banks also continue to climb. In November, they were hitting yet another new record high at 11.38% of all outstanding loans. However, recent reports from individual banks suggest that the total will continue to swell when the December data are released. Even the 'better' banks are seeing their delinquent loans jump:
“Rising bad loans at Bankinter (BKT.MC) and Sabadell (SABE.MC) point to more pain for Spanish banks as they near the end of a deep clean of rotten property assets that hammered profits last year. Though Sabadell and Bankinter are among Spain's healthier lenders which did not need rescue funds from Europe, both have been hit by big writedowns on soured real estate assets in the wake of the country's property market crash.
The drive to mark down toxic assets pushed Spain to take around 40 billion euros ($53 billion) in aid from Europe in 2012 for banks in need of capital and unable to cope. Most banks in Spain will take the last hit from property-related write-downs in fourth-quarter 2012 results. But a deep recession is still hurting their loan books.
Mid-sized Bankinter warned on Thursday its bad loans could hit 5 percent of total loans this year, up from 4.28 percent at the end of 2012, given Spain's weak economy and rising unemployment, even though January had been a good month.
"If the employment data continues to be like what we saw (on Thursday), we cannot be optimistic," said Maria Dolores Dancausa, chief executive of Bankinter.
Barcelona-based Sabadell, meanwhile, said its bad loan ratio jumped to 9.33 percent of total loans at the end of December from 8.46 percent in September, largely because of the integration of its 2011 purchase of stricken savings bank CAM. "It's a level implying a fourth-quarter rise … far above our expectations," said Nuria Alvarez, analyst at Madrid broker Renta4. She added the bad loan ratio was an area to watch at Sabadell even though the lender has a state-backed scheme in place to protect it against future losses after it bought CAM.”
As a reminder, here is what the long term chart of Spain's NPLs looks like (data until November 2012):
Spain's NPLs and the unemployment rate as of November. Unemployment is already at a new high, NPLs are set to follow – click for better resolution.
Evidently, Spain is in a severe depression. It seems to us that the financial markets are currently way too sanguine about the risks. Ultimately all they are hanging their hat on is a promise by Mario Draghi that he will print more money. We doubt that will be enough.
Charts by: Eurostat, Reuters
It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
One Response to “Spain – Unemployment and NPLs Continue to Soar”
Most read in the last 20 days:
- Insanity, Oddities and Dark Clouds in Credit-Land
Insanity Rules Bond markets are certainly displaying a lot of enthusiasm at the moment – and it doesn't matter which bonds one looks at, as the famous “hunt for yield” continues to obliterate interest returns across the board like a steamroller. Corporate and government debt have been soaring for years, but investor appetite for such debt has evidently grown even more. The perfect investment for modern times: interest-free risk! Illuustration by Howard...
- US Economy – Something is not Right
Another Strong Payrolls Report – is it Meaningful? This morning the punters in the casino were cheered up by yet another strong payrolls report, the second in a row. Leaving aside the fact that it will be revised out of all recognition when all is said and done, does it actually mean the economy is strong? Quo vadis, economy? Image credit: Paul Raphaelson As we usually point out at this juncture: apart from the problem that US labor force participation has...
- Investing in Gold in 2016: Global Paradigm Shifts in Politics and Markets
Crumbling Stability In the past few months, we have witnessed a series of defining events in modern political history, with Britain’s vote to exit the EU, (several) terror attacks in France and Germany, as well as the recent attempted military coup in Europe’s backyard, Turkey. Global stability continues to be undermined Uncertainty over Europe’s political stability and the future of the EU keeps growing. These worries are quite valid, as geopolitical...
- Trump's Tax Plan, Clinton Corruption and Mainstream Media Propaganda
Fake Money, Fake Capital OUZILLY, France – Little change in the markets on Monday. We are in the middle of vacation season. Who wants to think too much about the stock market? Not us! Yesterday, Republican presidential candidate Donald Trump promised to reform the U.S. tax system. This should actually even appeal to supporters of Bernie Sanders: the lowest income groups will be completely exempt from income and capital gains taxes under Trump's plan. We expect to hear...
- The Great Stock Market Swindle
Short Circuited Feedback Loops Finding and filling gaps in the market is one avenue for entrepreneurial success. Obviously, the first to tap into an unmet consumer demand can unlock massive profits. But unless there’s some comparative advantage, competition will quickly commoditize the market and profit margins will decline to just above breakeven. Example of a “commoditized” market – hard-drive storage costs per GB. This is actually the essence of economic...
- Bank of England QE and the Imaginary “Brexit Shock”
Mark Carney, Wrecking Ball For reasons we cannot even begin to fathom, Mark Carney is considered a “superstar” among central bankers. Presumably this was one of the reasons why the British government helped him to execute a well-timed exit from the Bank of Canada by hiring him to head the Bank of England (well-timed because he disappeared from Canada with its bubble economy seemingly still intact, leaving his successor to take the blame). This is how Mark Carney is seen by...
- Why Americans Get Poorer
Secular Stagnation OUZILLY, France – Both our daughters have now arrived at our place in the French countryside. One brought a grandson, James, now 14 months old. He walks along unsteadily, big blue eyes studying everything around him. Put to sleep by monetary lullaby! This is what children look like approximately five minutes into a rant on the Fed's policy mistakes. It never fails! Photo credit: Jack Weid He adjusted quickly to the change in time zones. And...
- An Old Friend Returns
A Rare Apparition An old friend suddenly showed up out of the blue yesterday and I’m not talking about a contributor who had washed out and, after years of ‘working for the man’, decided to return for another whack at beating the market. Instead I am delighted to report that I am looking at a bona fide confirmed VIX sell signal which we haven’t seen for ages here. Hello, old friend. Professor X and Magneto staring each other down in the plastic...
- The Fabian Society and the Gradual Rise of Statist Socialism
The “Third Way” “Stealth, intrigue, subversion, and the deception of never calling socialism by its right name” – George Bernard Shaw An emblem of the Fabian Society: a wolf in sheep's clothing The Brexit referendum has revealed the existence of a deep polarization in British politics. Apart from the public faces of the opposing campaigns, there were however also undisclosed parties with a vested interest which few people have heard about. And...
- Retail Snails
Second Half Recovery Dented by “Resurgent Consumer” We normally don't comment in real time on individual economic data releases. Generally we believe it makes more sense to occasionally look at a bigger picture overview, once at least some of the inevitable revisions have been made. The update we posted last week (“US Economy, Something is Not Right”) is an example. Eager consumers storming a store Photo credit: Daniel Acker / Bloomberg We'll make an...
- The Fed’s “Waterloo” Moment
Corrupt and Unsustainable James has been a big help. Trying to get him to sleep at night, we have been telling him fantastic and unbelievable bedtime stories – full of grotesque monsters... evil maniacs... and events that couldn’t possibly be true (catch up here and here). He turned his head until his gaze came to rest on the barred windows of the main building. Finally, he spoke; as far as I was aware these were the first words he had uttered in more than five years....
- Good Money and Bad Money
Confidence Gets a Boost OUZILLY, France – Last week’s U.S. jobs report came in better than expected. Stocks rose to new records. As we laid out recently, a better jobs picture should lead the Fed to raise rates. This should cause canny investors to dump stocks. Canny investors at work (an old, but good one...) Cartoon via Pension Pulse But the stock market paid no attention. It follows logic of its own. Headlines told us that last Friday’s report “boosted...