Citizens of Europe Spain latest newsletter

[John50]

Negative reaction in the markets to G-20 Summit Zapatero gate crashes White House.

Spain was not invited to the G-20 Summit in Washington, however, Prime Minister Rodriguez Zapatero gate crashed the conference on ‘the financial crisis’ by being included in the EU Delegation.

The Declaration from the Summit has not satisfied the world’s financial markets and leading stock exchanges continuing their downward spiral.

The Ibex fell 3.77% on Monday, and stands at 8.530,80 points on Wednesday morning.
Banco Santander fell 6.89% on Monday, another 1,15% on Tuesday, and its share value is down 53.75% over the last 52 weeks.

Spain will have great difficulties in following the recommendations of the Summit. (Read our comments at the end of this Report).



Control of mobile phones

Up to the 25th of this month, the Guardia Civil will make stop 65,000 vehicles on the roads of the Valencia Region, in an effort to catch drivers using their mobile phones whilst driving. The use of mobile phone is the cause for 38% of all road accidents, with smoking and searching for better music, also being serious contributory factors.

Euribor on way down

The Euribor is on its way down. The index which the banks use for calculating floating interest rates on mortgages is at the moment standing at 4.584% but is expected to fall further.
People with mortgages, on which interest rates will be revised at Christmas, will get a “present” on a loan of 150,000 euros over 25 years, when their monthly re-payments decrease by 10 Euros.

Fiscal pressure easing 2%

Minister of Finance, Pedro Solbes has, due to the financial crisis, reported a large fall in tax revenue. Which has resulted in a reduction of the fiscal pressure of 2.5% compared with 2007.
The Minister admitted that the budget for 2009 may have to be revised.

Minister of Housing defends LUV

The National Minister for Housing, Beatriz Corredor, has promised to defend the infamous Valencia urban planning law LUV at the European Court of Justice, against the complaints presented by the European Commission. Our readers will know that the Commission deals only with countries, not regions, and that the accusation is against Spain and not the Valencia Regional Authorities, who adopted the law.

Spanish complains most to European Ombudsman

Spanish citizens make the largest number of complaints to the office of the European Ombudsman. Many of which relate to questions regarding the environment and the situation of immigrants trying to reach Spanish coasts. Others refer to the huge avalanche of tourists during the summer.

Notary fees down 70%?

The government is preparing a law that will cut the fees to notaries and registries 70%. The law is supposed to take effect from 1st of July next year.

Tougher penal code

The Government has approved a revision in the penal code which increases sentences for a number of crimes and makes it possible to impose up to 30 years effective prison terms. Penalties for illegal construction and urban planning corruption have been increased, together with those for financial fraud. The new law has been framed by the two main parties in the parliament.

ETA military leader arrested

Mikel Aspiazu, military leader of ETA, and a woman with whom he was cycling, were arrested by French police in the French Pyrenees. Both were carrying arms when arrested. The operation was coordinated with the Spanish police forces.
Aspiazu has 22 accusations pending in 6 courts, which include the assassination of two Civil Guards in Capbreton (France) a year ago and the bombing of air terminal T-4 in Madrid two years ago, which took the lives of two immigrants.

Wealth tax suppressed in Madrid Region

Madrid’s Regional Government has abolished the Wealth tax in its budget for 2009. The President of the Regional Government, Esperanza Aguirre, has stressed that in the first half of this year, the Madrid Region received 80% of Spain’s foreign investment.

Houses for sale with 122,263 Euros rebate

In the property project “Residencial Las Villas” in Vallecas, on the outskirts of Madrid, it is possible to buy semi-detached bungalows of a high standard with 200 m2 of living space, with rebates of 122,263 euros.
However, the original price was 519,763 euros so even with the rebate of 24% the price is still 397,500 euros ….

25 arrested for urban planning corruption in Estepona ….

In Estepona on the Costa del Sol, 25 people have been arrested for urban planning corruption, accused of influence peddling, fraud and laundering black money. They include: the mayor, 4 councilors, several ex-councilors, business leaders and municipal technicians.
The mayor, Antonio Barrientos, is from the socialist party PSOE. The party has started proceedings to remove him from the party.

....and 5 more in Bigastro

In Bigastro (Alicante) where the socialist mayor was recently arrested and at once stepped down as mayor, both the new mayor and the first vice mayor, and 3 councilors from the previous municipal government, have now been arrested as well. Is there anyone left in Vega Baja?









The weekly crisis:

- Non-paid commercial debts in September increased 98.7% over the number of failed payments in the same month last year and 32.2% more than in August of this year.
- The number of new companies registered in September fell 20.7% compared with the same month last year, whilst 6.9% more companies were dissolved.
- The Secretary of State for Hacienda and Budgets in the National Government has admitted the possibility that the budget deficit in 2009 may be over 3%.
- It is expected that 25,000 commercial entities will close their doors before the end of this year.
- The property group Tremón has gone into bankruptcy with debts of almost 900 million euros.
- Moody´s has lowered the debt rating of Banco de Valencia from A2 to A3 with a negative trend, due to its high exposure to the property sector and the rapid deterioration of its assets.
- Renault will close its factories in Valladolid for 11 days this month and in Palencia 14 days. The first factory produces the models Clio and Modus and the second the Mégane.
- The property company Colonial now has debts of 8,975 million euros, and has admitted not selling a single dwelling during the first 9 months of the year.
- Spanish banks have amassed 345,175 million euros in guarantees for obligations entered into by companies and private individuals, 85% more than 3 years ago.
- Property company Masdevallia and sales company One Property, which promoted the ambitious developments Nueva Ribera and Nueva Ribera Golf Club near Mar Menor in Murcia, have both gone bankrupt and lawyers are searching for the people, who invested with them, to present their claims.
- Property consultants Aguirre Newman have calculated that present property prices need to be reduced at least 23% before buyers can be found.
- The Spanish are turning out the lights: Electricity consumption fell 1.7% in October, compared with same month last year.
- Caritas has reported there are more than 30,000 homeless people and that 1,500,000 families live in slum dwellings.

[John50]

Will G-20 Summit influence crisis?
Despite hectic lobbying by Prime Minister Rodriguez Zapatero, Spain was not invited to the G-20 Summit in Washington and the Spanish flag was not among those decorating the conference hall. However, Zapatero gate crashed the conference and the reception in the White House, by being included in the European Union delegation.
It was not to be expected that a hastily arranged summit meeting, of so many nations and organisations, would take serious steps to “change the system,” which some political leaders and financial experts had demanded. “Lame duck”- President Bush admonished all participants before the conference started against such a policy and instead to try to improve a system which has brought us a number of financial crises since the last world war.
The main points agreed on at the summit were:
• The International Monetary Fund and the World Bank will be reformed with a greater participation of the emerging nations.
• All countries will prepare fiscal plans to reactivate the economy.
• The summit exhorted that the “Doha Round” on free trade must come to an agreement, after being blocked for a long time.
• No actor or financial market should escape regulation.
• Rating agencies and the “hedge funds” must be better overseen.
• A college of supervisors to control the banks must be set up.
• The norms for accountancy must be harmonized for a better valuation of assets.
Maybe the most important decision of the summit was to call another conference before 30th April 2009, to verify the results of the first one. President-elect Barack Obama will take part in that conference.
Meanwhile, the financial markets have not been positively influenced by the conference and its decisions. Almost all stock exchanges, worldwide, fell in the days following the summit.
It is not clear how prime minister Zapatero will lower taxes to reactivate the economy. His minister of finance, Pedro Solbes, is against any tax cuts, and already the budget deficit for 2009 is expected to reach 3% in 2009. It is clear that the Government will have to revise the budget for next year.






Spanish real estate debts turn toxic

Mark Mulligan and Victor Mallet have published the following interesting article in the “Financial Times”:

Note that many of the large Spanish banks (and other companies that made much of their wealth from the various property rackets here) placed the bulk of their money outside this country in good times and in many cases outside the Euro-zone to escape ECB oversight? In any event they aren't evidently contributing to any "recovery" here by bringing their wealth home, except for punishing refinancing deals with cash starved property enterprises, even though they are lining up to get the help offered by the government and directly or indirectly the European Central Bank. Was it wisdom on the part of the Spanish banks to have avoided the "subprime" and other "toxic" investments, or was it that they were too busy dabbling in overvalued real estate? Besides which they were on a short leash, not of their own choosing, but thanks to their serious investment mistakes in the 1980's and 90's. CVS)

Spanish banks wisely shunned the toxic financial instruments that crippled several of their international peers. And they can meet their wholesale funding needs with the help of €150bn ($191bn) in emergency Spanish government guarantees and asset purchases.

But Spain’s banks and cajas (the unlisted savings banks) cannot avoid the impact of their domestic property crash.

As developer after indebted developer collapses and hands over devalued property projects to creditors, the issue of bad real estate debts has emerged as the biggest threat to the health of the Spanish banking system, according to senior bankers and regulators.

The Bank of Spain’s inspectors at banks and cajas are anxiously studying the creditworthiness of 50,000 small, speculative developers as well as the big 15.

Spain’s residential housing bubble burst last year, paralysing homebuilders and leaving nearly 1m new houses and flats unsold. Now the malaise is spreading to commercial property and public works.

David Stix, chief executive of Iberian Equities broker, said: “Banks, especially savings banks, are heavily exposed to real estate developers, and we expect the inventory overhang of homes could take five years to resolve”.

At the end of June, total bank credit for property developers reached a record €313bn – nearly 10 times the level at the start of the decade – while loans for construction companies stood at €156bn, according to the Bank of Spain.

Many of these corporate loans are turning bad at an alarming rate. Bankers in Madrid say up to a third of the lending to property developers – typical estimates range from €40bn to €90bn – could go bad before the slump ends. At several cajas and banks, the generic bad debt provisions set aside in recent years will quickly be drawn down.


The collapse of Martinsa Fadesa, one of Spain’s biggest developers, was partly responsible for a €9bn surge in overall bank bad debts in July, and by August total bad and doubtful debts in the banking system reached €46bn, or 2.5 per cent of loans. The ratio could reach twice or even three times that level, bankers say.

Signs of distress are already visible. Caja Madrid, one of the strongest cajas, reported a sharp rise in its non-performing loan ratio to 3.57 per cent in the third quarter.

Lenders, however, are keen to avoid any more high-profile corporate collapses. Rattled by Martinsa’s failure, they have arranged complex refinancing deals that amount to life support for cash-starved builders and developers.

In the most recent case, Reyal Urbis refinanced about €3bn of debt. Under terms agreed with lenders, led by Santander and its subsidiary Banesto, the company’s first repayment falls due in October 2011, and the last, for 40 per cent of the capital, four years later. This “bullet” structure has become standard in Spanish debt workouts.

Metrovacesa, a leading Spanish property group struggling to service its debt, has also been shedding assets, and is considering selling back to HSBC the UK bank’s London headquarters for up to £300m less than it paid for the office tower last year.

The crisis is turning the banks into substantial real estate owners and brokers themselves.

Banesto in July said it would use its own branch network to sell Reyal Urbis properties as part of a joint venture aimed at helping keep the company afloat.

Other banks, including Santander, have been quietly swapping debt for real estate assets for the past year, and some have switched debt for equity. Banco Popular, a mid-sized listed bank, and savings and loans leader La Caixa have been left with a joint 15 per cent stake in Colonial.

One Spanish official says: “In the last crisis, savings institutions got a lot of houses, and that turned out to be the best business they ever did in their lives”.

Even if that trick can be repeated, however, the dire state of the property market means it could take years for banks to offload the homes that they financed and that should never have been built.