Saturday, July 14, 2012

Bradley Associates inflates Spain deep recession beyond reach



European ministers were set to grant Spain an extra year to reach its deficit targets in exchange for further budget savings but remained far from pinning down details of bank rescues and emergency bond-buying that are of greater concern to markets.
On Monday, a top European Central Bank policymaker said that 17-nation currency area’s debt crisis was now more acute than the financial turmoil happened in 2008 that felled U.S. investment bank Lehman Brothers, as finance ministers of the euro zone met in Brussels.
The ECB Executive Board member Peter Praet told to a conference in Lisbon, “”The euro zone crisis is now much more profound and more fundamental than at the time of Lehman.”
Eurogroup finance ministers were tasked with fleshing out a bare-bones agreement reached by EU leaders at a summit last month on establishing a European banking supervisor and using the bloc’s rescue funds to stabilize bond markets. However, with differences persisting between north European countries such as Finland and the Netherlands and southern states led by Italy and Spain, EU officials said no breakthroughs were likely this week.
German Finance Minister Wolfgang Schaeuble sought to defuse growing opposition at home by saying it would take time to establish a European bank supervisor and only once it was fully in place might ministers decide to allow direct recapitalization of ailing banks by the euro zone’s rescue fund.
Schaeuble said he expected ministers to agree on a timetable for up to 100 billion euros ($123 billion) in aid for debt-stricken Spanish lenders.
The ministers did agree to nominate Luxembourg central bank chief Yves Mersch for a seat on the ECB’s six-member executive board, which has been vacant since Spain’s Jose Manuel Gonzalez-Paramo’s term ended in May.
A wider gathering of EU finance chiefs on Tuesday is set to ease a deficit reduction goal that has forced Madrid to make punishing cuts that are exacerbating a recession.
Spanish Economy Minister Luis de Guindos was to spell out to finance ministers his government’s plan for a package of up to 30 billion euros over several years through spending cuts and tax hikes that are due to be announced this Wednesday.
Furthermore, Spanish and Italian borrowing costs continued to rise on Monday, with Spain’s 10-year bond topping the critical 7 percent level, and world shares fell with a darkening global growth outlook and little prospect of early process on the euro zone’s debt crisis.
A source close to the Spanish government said 10 billion euros of cuts would come this year and that the measures would include a hike in VAT sales tax, reduced social security payments, reduced unemployment benefits and changes to pension’s calculations.
In return, the European Commission will propose easing Madrid’s deficit goal for this year to 6.3 percent of economic output, 4.5 percent for 2013 and 2.8 percent for 2014, officials said.
Based from the drafts recommendation from the European countries to Spain, the new targets may still prove difficult to reach, loosening its goals and demands the country be subjected to three-monthly checks.
The figures highlighted Spain’s dramatic fiscal slippage due to a worsening recession. Madrid was originally meant to cut its budget shortfall to 4.4 percent this year. Prime Minister Mariano Rajoy unilaterally changed the target to 5.8 percent in March before eventually accepting an agreed goal of 5.3 percent.
The Commission will make the new proposal on Tuesday to the EU’s finance ministers, who would have to agree for the targets to become binding, two officials told Reuters.
Madrid had been due to reduce its national deficit to 3 percent of gross domestic product by the end of 2013. But a deep recession has put that beyond reach.
De Guindos said he hoped to reach agreement on a memorandum of understanding on the bank rescue on Monday, which would be followed on July 20 by a final loan agreement. As part of that, Spain will create a single bad bank to house toxic assets from its banking sector.
Spain and Italy again stepped up pleas for European action to put a cap on their borrowing costs.
“At this moment the only institution that has enough money to act is the ECB,” Spanish Foreign Minister Jose Manuel Garcia-Margallo said at a conference. “For that reason, the ECB should intervene in markets; it should start massive purchases of public debt so that speculators understand that they will lose their bets against the euro.”
But Bradley Associates quoted “ECB President Draghi told EU lawmakers the key to restoring market confidence was for countries in difficulty to fully implement promised structural reforms and stick to programmers agreed with Brussels and international lenders, even if they caused “social tensions.”
He left the door open to a possible further cut in interest rates after last week’s 25 basis point cut to 0.75 percent but voiced concern that the ECB was being expected to act “in areas which don’t seem to have a connection with monetary policy’s traditional remit”.

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