May ended in Spain with frantic
attempts to prevent the collapse of the banking system, saddled with a
massive amount of toxic loans linked to the housing bubble. The
government attempted to involve the European Union in the rescue of
Bankia, while there were rumours of IMF plans for a bail out of Spain.
Meanwhile miners have gone out an all out strike in defence of jobs.
May ended in Spain with frantic
attempts to prevent the collapse of the banking system, saddled with a
massive amount of toxic loans linked to the housing bubble. The
government attempted to involve the European Union in the rescue of
Bankia, while there were rumours of IMF plans for a bail out of Spain.
Meanwhile miners have gone out an all out strike in defence of jobs.
Miners on strike, May 31. Photo: Pierre Rocke CastellThe
miners are blockading roads with burning barricades in the mining
counties and 10,000 of them marched in Madrid and warned that “next time
round we will come with dynamite”. It was a graphic image of the
enormous contradictory tensions which have built up in Spain and which
now are reaching boiling point. The capitalist class wants to make the
workers pay for the crisis, but the crisis is so acute that this is
already creating a massive social explosion. The “markets” (i.e.
bankers, investors, speculators) doubt that Spain will be able to solve
its crisis, sending the risk premium on Spanish bonds to unsustainably
high levels. The differential between Spanish and German bonds is now
over 5.4 percentage points, a record high, and Spain is being asked to
pay 6.6% interest on state bonds, very close to the 7% level which
triggered the bail outs of Greece, Portugal and Ireland.
As we have explained before, the two fault lines of the crisis of
capitalism in Spain are the massive debts accumulated in its banking
system as a result of the housing bubble which fuelled the previous
growth cycle, and the budget deficit which has been accumulated by the
state as a result of the economic crisis itself and the initial bailout
of the banks.
House prices in Spain have only come down by about 20% since their
peak (much less than the 45 to 50% drop in Ireland or the US for
instance). Some economists calculate that they have to fall by at least
another 20% before they stabilise. The banks lent massively to
individuals to purchase their homes. Many of the borrowers cannot pay
for their mortgages as they have lost their jobs (unemployment has risen
from 1.8 million in 2007 to 5.6 million now). The banks also lent
massively to building companies, many of which have gone bankrupt or are
sitting on an enormous amount of empty finished houses or empty land
which they cannot sell on the market.
The total amount of housing credit (to individuals and building
companies) on the balance sheets of Spanish banks is probably close to
one trillion euro. There are different calculations of how much of that
is “risky” or already non-performing. Estimates vary between the €150
billion officially recognised and €250 billion, but as the crisis
worsens (Spain is in recession again), this figure is likely to grow
even further.
Spain went through over 14 years of uninterrupted economic growth
during the period of the boom. European banks were happy to lend massive
amounts of money to Spanish banks and became heavily exposed to the
Spanish banking system. German banks alone hold 180 billion euro of
Spanish private debt.
The banking crisis has come to a crunch with the collapse of Bankia,
the country’s fourth largest bank. The bank was created in 2010 through
the merger of a series of cajas (regional savings banks) that were in
difficulties and €4 billion of state money. Now the government has been
forced to nationalise Bankia and will have to pump in another €19
billion. Some 340,000 small investors, who were tricked into believing
this new bank was sound as it was backed by the state, stand to lose
everything.
It is not only Banka that is in trouble. The Spanish government,
which has already been forced to nationalise 8 banking institutions, has
passed a series of financial sector reforms, forcing the banks to find
tens of billions of euro to cover themselves against non-performing
housing related loans.
The key question is: where the banks are going to find the necessary
money (over 80 billion euro) to comply with the new government
regulations? It is clear that they cannot go to the markets to raise the
money, but the state cannot raise the necessary amount to bail them
out. The low estimate of the cost of this bailout is €100 billion. As a
comparison, the budget cuts approved this year amount to around €30
billion.
Spain wants the European Central Bank (in effect Germany) to
intervene. The ECB is resisting. The US has said it backs Spain’s
position… which is that Germany should pay! It is of course easy to be
generous with someone else’s cash. The Spanish government complains
that it has already done everything it could to put its house in order
with massive cuts in public spending, a brutal counter-reform of the
labour law, etc. This is all true. However, those “reforms” are not
enough for the markets to recover their “confidence” in Spain and the
risk premium on Spanish bonds keeps rising. No sane investor will trust a
government that ran a budget deficit close to 9% of GDP in 2011. The
European Union therefore replies that the measures are not enough, that
cuts and “adjustment” must be implemented quicker (for instance bringing
forward the rise in the retirement age), but that it is prepared to
give Spain an additional year to meet the target of bringing the budget
deficit down to 3% of GDP (a target which is completely impossible to
meet anyway).
As we have explained before, the problem with Spain (and also Italy)
is that these two countries’ economies, unlike Ireland, Portugal and
Greece, are too big to be bailed out. Spain is the fourth largest
economy in the euro-zone. The cost would be unbearable for the European
economy as a whole. However, they are also too big to be allowed to
collapse. This is the contradiction that Spanish and European (in
particular German) capitalists are faced with.
