With Spanish 10Y yields hovering at a ‘relatively’ healthy 5%, having been driven inexorably lower on the promise of ECB assistance at some time in the future, the market has become increasingly unsure of just who it is that keeps bidding for this stuff. Well, wonder no longer. As the WSJ notes, Spain has been quietly tapping the country’s richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds – with at least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt. Of course, this is nothing new, the US (and the Irish) have been using quasi-government entities to fund themselves in a mutually-destructive circle-jerk for years – the only difference being there are other buyers in the Treasury market, whereas in Spain the marginal buyer is critical to support the sinking ship. The Spanish defend the use of pension funds to buy bonds as sustainable as long as it can issue bonds – and yet the only way it can actually get the bonds off in the public markets is through using the pension fund assets. The pensioners sum it up perfectly “We are very worried about this, we just don’t know who’s going to pay for the pensions of those who are younger now,” or those who are older we would add.Spain has been quietly tapping the country’s richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds, raising questions about the fund’s role as guarantor of future pension payouts. Continue reading
Spain’s property slump will deepen for much of the next decade, and tracts of buildings along the Mediterannean coast will have to be demolished, the country’s top consultants have warned.
“The market is broken,” said Fernando Rodríguez de Acuña, the group’s vice-president. “We calculate that there are almost 2m properties waiting to be sold. We have made no progress at all over the past five years in clearing the stock,” he said.
“There are 800,000 used homes on the market. Developers are sitting on a further 700,00 completed units. Another 300,000 have been foreclosed and 150,000 are in foreclosure proceedings, and there are another 250,000 still under construction. It’s crazy.”
More evidence of Germany playing an influential role through the crisis.
“We’re in a situation of total emergency, the worst crisis we have ever lived through” said ex-premier Felipe Gonzalez, the country’s elder statesman.
The ECB is pushing Spain to accept a loan package from the EU bail-out fund (EFSF), the proper body for fiscal rescues. Mr Rajoy has refused vehemently. Any recourse to the EFSF is viewed with horror in Madrid, entailing an unacceptable loss of sovereignty.
The result is paralysis as both sides refuse to shift ground. Mr Rajoy is clinging to hope that the EU will take care of Spain’s banks through an EMU-wide recapitalization plan. This would avoid stigma and draconian conditions.
Brussels floated the idea on Wednesday for a eurozone “bank union” and use of the European Stability Mechanism — which has not yet been ratified by most states — to rescue banks and sever the dangerous nexus between crippled lenders and crippled states.
The proposals were shot down instantly by Berlin. Such plans amount to debt-mutualization, a form of back-door eurobonds. German opposition is “well known”, said the Kanzleramt.
Sources in Berlin say Germany wants Spain to tap the International Monetary Fund — as well as the EU — to spread the rescue burden to the US, China, Japan, Britain and others.
Full article: Spain faces ‘total emergency’ as fear grips markets (The Telegraph)