Summarizing What Spain Just Announced, And What Was Left Unsaid (Hint: Cash)

Tyler Durden's picture

With EURUSD now 100pips higher, equities holding gains, and Monti confirming to the world that his Spanish friends have made considerable moves here, we leave it up to BNP to point out the sad reality of what we have just been sold. The 2013 budget does indeed focus on spending cuts (worth potnetially 0.75% of GDP next year) which is providing a headline of epic austerity, but the use of the social-security fund to buy time, the overly optimistic growth forecasts for 2013, and the lack of detail on structural reform was disappointing (or should have been to anyone who actually listened). It seems Spain has effectively agreed the terms for financial aid, without agreeing the terms of financial aid and while their hope is that the leftovers from the banking bailout fund will ease some pain; it seems the regional angst (Catalonia for example) and the fact that, as we noted a month ago, Spain only has enough ash to see it through to October, leave them likely to need EUR30-50bn minimum in October (as we said a month ago).

BNP: Spain: Hostage to Catalonia (among other things)

  • Spain is edging closer to asking for financial aid, but it’s a long, slow process. We think Spain will find it very difficult to hold out longer than October, though a transfer from the social-security stabilisation fund could give it some room to manoeuvre.
  • After today’s announcement of the 2013 budget and planned structural reforms, the next event is tomorrow’s publication of the results of the bottom-up bank audit.
  • The Eurogroup should take a broadly positive view on the new measures, assuming it is given more detail, allowing the Spanish government to spin any bailout as a reward for eform. This could remove part of the stigma associated with it, at least domestically.
  • The country’s regional elections on 21 October could be the last obstacle to an aid request. Another glitch, however, is Catalonia’s call for an early election in November and a potential referendum on regional autonomy.
  • Any unused funds from the bank bailout may be used to lower the final cost of a sovereign bailout, something that should appease Germany. But we don’t think these funds will be enough and expect Spain to request additional funding.

After today’s presentation of the 2013 budget, a new swathe of structural reforms and tomorrow’s publication of the bottom-up review of the Spanish banks, we should have a bit more clarity on the potential timeline and scope of any Spanish aid request.

The next Ecofin meeting on 8 October will assess the reforms and the budget, as well as the details of the bank reforms to be undertaken as soon the first tranches of the bank bailout funds are released. We think the assessment should be positive, assuming more details are provided, as both the reforms and budget have been drafted with the input of the IMF and the European Commission. Both IMF chief Christine Lagarde and the European Commission have confirmed that teams from their institutions have been in Madrid in recent weeks, helping to compile the 2013 budget and to lay out the structural changes that are needed in the Spanish economy.

The Spanish budget for 2013 will focus on spending cuts in a bid to pull the country out of the current crisis, the Spanish government said today. At the same time, tax revenues are likely to increase by 3.8% next year, while tax income in 2012 will be higher than budgeted. Central government spending will increase by 5.6% as a result of the increase in spending on social security and debt-servicing costs. The only areas to see higher spending next year will be pensions and third-level education.

The government estimates that the spending cuts could be worth EUR 7.5bn, or just over 0.75% of GDP in 2013, with revenue changes amounting to almost 0.6% of GDP. There will be an 8.9% cut in ministerial spending across the board, a 20% tax on lottery winnings that is expected to raise EUR 824mn) and a freeze on public-sector pay for the third year in a row, the government said. It also plans to do away with mortgage rebates, do away with certain corporate tax exemptions and transfer EUR 3bn from the social-security stabilisation fund to pay for pensions and social benefits, or “short-term liabilities”, as the vice premier termed it. The government already transferred EUR4.75bn in August from the off-budget stabilisation fund, which had around EUR 66bn in its coffers at the end of 2011.

A new budgetary authority will be created to keep Spain on the fiscal straight and narrow. The framework for the new body will be in line with recommendations by the European Commission and the IMF.

The government left unchanged its budget-deficit forecasts for this year and next at 6.3% of GDP and 4.5% of GDP, respectively. Surprisingly, it also left its growth forecast for 2013 unchanged at -0.5%, despite announcing new tax increases, which are likely to further damp already weak internal demand. We think that both deficit targets are optimistic and forecast a deficit-to-GDP ratio of 7.0% of GDP for this year and around 5% for 2013. We have a growth forecast of -1.8% for 2013.

It plans more than 40 economic reforms over the next six months and will present reforms to the pension system by year end. Those reforms will include an increase in the retirement age, a measure Spanish Prime Minister Mariano Rajoy had been resisting until recently.

On the structural-reform front, there was some disappointment. Economics Minister Luis de Guindos said the government would take on board all of the EU’s recommendations, but he was somewhat short on detail. Mr de Guindos said the government would reduce the incentives for collective wage bargaining, but didn’t specify how. Incentives to take early retirement will be reduced, he said, though the details will have to be agreed with the social partners.

So, Spain has, in effect, already agreed to the conditions for financial aid, without agreeing to the conditions for financial aid. The presentation of the reforms before a begging trip to Brussels should make the bailout an easier sell domestically. ESM and ECB support will be seen more as a reward for government efforts and less as a punishment for fiscal and structural laxity. However, the Spanish government still thinks it should wait before requesting help. Question is, how long?

The Bank of Spain says the Spanish Treasury deposited EUR 26bn with Spanish banks at the end of July. This can be considered a rough estimate of the liquidity available to the Spanish state and the best point from which to examine the current capacity of Spanish coffers.

Over the last five years, the Spanish primary deficit in the last four months of the year has been around 38% of the deficit for the year as a whole. If we assume that this year’s budget-deficit target of 4.5% of GDP (EUR 45bn) is to be met, and taking into account the tax increases to come into effect on 1 September (worth EUR 4.9bn, according to the government’s estimates) and the cuts in civil-service Christmas pay (EUR 5.2bn), this leaves a total EUR 20bn of to be financed through the end of 2012 (or close to EUR 5bn per month). However, the distribution of this financing gap is not homogeneous. September and October usually see an average monthly surplus of around 0.4% of GDP (close to EUR 4bn), while in August and in the last months of the year, the central government usually posts monthly deficits. However, as we have seen since the beginning of the year, the central government has been transferring funds every month to the autonomous regions, so these surpluses may be lower this year.

So, if Spain refinances its bills in the market, based on the pattern of last year’s deficit, it may only have enough cash to cover its deficit and its bond redemptions through the end of October. It is a very close call, however, and October could well be the last financially tricky month in 2012. November and December are usually months in which the budget balance averages a deficit of 0.6% of GDP. Spain could try to muddle through after October, either by increasing the size of its auctions, increasing bill issuance, or just running arrears.

If this is the case, however, Spain will be left with almost no cash and will be pretty much forced to live from day to day, in fiscal terms. At that point, Spain will be forced to request help. And Mr Rajoy must have realised this, as yesterday, he said in New York that Spain would “surely ask for support” if yields remained too high for too long. Still, the EUR 3bn transfer from the social security fund could buy it a little time, if it happens this year.

So, not only is the fiscal clock ticking for Spain, but there are other factors that could influence the timing of a request.

France and Italy are among those countries with the biggest interest in Spain asking for aid before the EU summit on 18-19 October. Germany, in contrast, would prefer for domestic political reasons to postpone any Spanish bailout, especially as Spain is only on the verge of receiving the initial tranches of its bank recapitalisation funds. But even Germany’s resistance seems to be faltering. Over the past week, both German Finance Minister Wolfgang Schaeuble and Michael Meister, chief whip of Chancellor Angela Merkel’s CDU party, said that Spain needed to decide quickly whether it needed support or not.


Mr Rajoy seems more inclined to wait until after the 21 October regional elections in Galicia and the Basque country. The latter is not an issue, as the prime minister’s Partido Popular has little chance of winning there anyway. But Galicia is Mr Rajoy’s home region and, according to the latest polls, the PP could lose control of it. An aid request before that vote would be a bitter blow to the campaign and would be seen as a personal defeat for Mr Rajoy.

Recent comments by members of his party usually more supportive of his positions suggest that Mr Rajoy may be becoming increasingly isolated in his position, though. So, Spain could end up asking for support before the elections on 21 October, but after the Ecofin meeting on 8 October.

And to top things off, developments this week in the region of Catalonia could increase the urgency of a Spanish request, as its political manoeuvrings could amplify the already significant doubts the market has about Spain. Early this week, the government of Catalonia called an early election for 25 November in a bid to underpin its defiant stance against the Spanish central government. And this after the region asked for a handout of EUR 5bn from the central coffers. Now, it seems local politicians are touting a possible referendum on self-determination as an electoral carrot. But even if the calls for Catalonian independence can be taken with a pinch of salt, the turbulence stemming from all of the regions’ unwillingness to toe the fiscal line can only make the central government’s job more difficult and the markets more sceptical.

Today’s announcement of the creation of a national fiscal council to wrestle control of regional finances is a positive step, but we can’t help but wonder what power it will have when the regions are striving for more and more autonomy. Moreover, if the government of Catalonia is successful in its strategy and gets its loan on easier terms, why shouldn’t more regions do the same? As if on cue, today, Castille la Mancha requested EUR 800mn in aid from the central government, making it the fifth Spanish region to ask for help from Madrid.

The question of the amount of any Spanish bailout, meanwhile, is also something that has yet to be addressed. The EU has already set aside EUR 100bn for a programme to recapitalise the Spanish banks and, according to the latest reports, their capital needs may be just EUR 60bn. The banks could potentially find EUR20bn of that either in the market or by selling assets to the country’s future bad bank, leaving between EUR 40bn and EUR 60bn to play with.

One possibility touted by the media is that Spain could transfer its unused bank bailout money to the government. This would keep Germany happy, as the transfer could be made courtesy of a tweak to the bank-bailout MoU, avoiding the need for German parliamentary approval. Another possibility doing the rounds is that Spain might try to avail of the ESM’s bond-guarantee scheme, which would cover investors for the first 25% of any losses on Spanish government bonds.

However, aside from any potential legal objections, for ECB intervention to occur, a country must either be under a “full” austerity programme, or have requested a precautionary one. So, even if Spain were to go down this route and the other European countries were to agree, a new MoU would have to be signed, with all of the conditions that go with it. And this might not be enough. Spain’s funding needs for the next 12 months are close to EUR 180bn. If an ESM programme were to fund only 50% of Spanish issuance, this would mean it would need a capacity of close to EUR 90bn, more than the EUR 40-60bn that might be left over from the bank bailout. And the ESM bond-guarantee option also seems unlikely, in our view, as the ECB would require a greater commitment from the government before starting to buy its bonds.

So, the most likely scenario, in our view, is that Spain will have to request further financing of EUR 30-50bn, even if the unused bank-bailout funds can be transferred. And despite having some time on its hands, we think Spain will be forced to request help in October.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Squid Vicious's picture

bullshit out of spain is good for 50 points on the Nasdaq, makes PERFECT sense....

Kitler's picture

< Stay

< Go

Should they stay or should they go?

If they go there will be trouble.

If they stay it will be double.


akak's picture

If they stay the Euro bubble

Will soon turn into Euro rubble

And then the USA will start to holler

As the same thing happens to the dollar.

THX 1178's picture

Dollar Dollar burning bright, In the dumpster of the riot.

akak's picture

What immortal bankster eye

can frame thy fearful asymmetry?

walküre's picture

The narrative is changing. Now EVERYTHING is depending on when Spain is asking for a full blown BAILOUT. In other words the markets are going to skyrocket once Spain declares itself unable to pay its bills, a.k.a. BANKRUPT and asks for the ECB and the IMF to step in with a rescue fund?


I knew we're way deep down in Lalaland but c'mon this is just STUPID.

Calling FULL RETARD at this point.

CrashisOptimistic's picture

Get Out Of The Market.

Equities are complete bullshit and you know it.  Don't try to "play" them.  This isn't Las Vegas.

Find farmland and buy it.  Get it to grow things.  Earn 3%/yr on your bought-for-cash land, and also cut your food budget in half as you eat some of your produce.  That will equate to in increase in return.

This 4% return will look very good when the markets fall 20% overnight.

NEOSERF's picture

My thinking as well...having the gall to have to have to ask for a handout is now worth hundreds of points on the Dow like it changes anything...only reason France and Germany haven't been pulled into the abyss is because so far the funds to Greece have funneled back days later to German/French banks.  Once the ESM starts requiring real money and real payments that don't come out of the Spanish black hole, banks are going to have more problems elsewhere.  Wouldn't put it beyond the Spanish to pull out of the Euro suddenly and start the collapse...

Dareconomics's picture

The numbers are bullshit. BNP uses a 7% of GDP deficit. Based on the first half of the year's 4.04% figure and the fact that every month things get worse, I am using a still conservative 8.1%. Allow me to beat a dead horse here. After the Greek fiasco and the worsening Spanish situation, why does anyone believe the numbers emanating out of the European finance ministries?

Check my math and see what you come up with. My numbers are good up until September 6. Spain has sold another €8bn or so in bonds and bills since then.

Spain will run out of money sometime around Halloween giving Rajoy just enough time to get through elections on the 21st.


Cognitive Dissonance's picture

"....but the use of the social-security fund to buy time...."

Hell...the USA has been doing that for years. Spain just doesn't know how to run a good Ponzi.

<Freaking amateurs are such a pain in the ass sometimes.>


resurger's picture

No one is buying the broke periphery paper any longer...

The ECB is the only European market left, so in October they will buy  those bonds for 50bn, the result (Success)

Rally ...

Wake me up when November 6th ends...


Kaiser Sousa's picture


and the question in my mind still remains....

all this is predicated on the government of spain either by force or intrigue facilitating the transfer of its citizens sovereignty to the paymasters in Germany, etc...

Will the populace allow this?????

and if not, resulting in more talk and no real reform will the Germans leave the Euro? or...

will the ECB allow Spain to implode and risk the begining of the end for the Banker dream of total control of all of Europe/One World Government???

am i off base with these questions???

insanelysane's picture

Why do you think the populace in Germany will allow their government to raise their taxes to pay for Spain?


That is why eventually the can is kicked off a cliff and the Eurozone breaks.

Kaiser Sousa's picture

'Why do you think the populace in Germany will allow their government to raise their taxes to pay for Spain?"

because the bankers r the true government in Germany, Italy, Spain, the US and everywhere else....

that is why i believe that they will do anything and everything to preserve to debt paradigm from which their power and wealth is derived...nothing changes unless the citizenry of all nations enslaved by the bankers resist in all forms their tyranny and design for global control via control of currency......

MrBoompi's picture

Yes, the financial elite from the IMF and EurComm have visited Madrid to work out the "structural changes" needed for the Spanish economy.  What a horrible state of affairs for Spanish citizens.  If you can't leave the country, you're screwed now.



Vincent Vega's picture

"tomorrow's publication of the results of the bottom up bank audit". Here, let me save you the suspense: They're broke!

NEOSERF's picture

Regardless of the audit results it should be worth at least 150pts on a no volume Friday.  If the audit results are bad, people will say they are being open and "get it".  If they are good, no one will ask questions...either way the markets will go up because they "won't be as bad as feared".  HFT seems to consider any utterance by any demi-official in the EU as reason to run up the market...sickly

The Axe's picture

kicking the can    has worked     it worked to drive me insane.....

Squid Vicious's picture

comfort yourself with the knowledge that Monti, Draghi, Rajoy, and the Shalom, etc. will be enjoying 4 star dinners tonight and washing it down with disgustingly expensive bordeaux and/or cabernet...

Tsar Pointless's picture

You know, I will.

While I dine of leftovers, scouring the Internets for any crap job I can find where I can gladly dehumanize myself day-in and day-out, all for a measly few dollars in comparison to what these schmucks steal. And while I worry about losing my house because I will be running out of what right-wingers like to call "funemployment" benefits in December.

Oh, and while I listen to the right-wing fascists of this country tell me I am lazy and don't want to work and/or pay my fair share.

Is this country great, or what?

Vince Clortho's picture

It's fun to make sport of these men, but let's not forget the incredible strain they are under.  I would not be surprised if that 4 star dinner were interuppted by a serious phone call to make sure the computer operators are still hitting Ctrl-P on schedule.

And you can rest assured that the awesome responsibility of debasing Euro and American currencies will weigh heavily on their brows as they consume those fine wines.

insanelysane's picture

Govt pension plans figure on 8% return minimum per year for infinity.  what could go wrong?

Tsar Pointless's picture

Whether or not George Washington said it or not, I believe the following is correct:

The last official act of any government is to loot the treasury.

Well, Spain is just taking its turn. And, of course it's bullish for equities. Any act of white-collar crime that can be immediately laundered via the purchase of said equities is nothing short of bullish.

Inthemix96's picture

This is getting insane.

Does anyone on here think this bollocks is going to end or will we still be posting about 'immenent collapes' in 10 fucking years?

Stop the ride bitchez, this tired fucker wants off.

LawsofPhysics's picture

In my bussiness sector I am aware of at least two defaults on contracts to deliver some commodities.  This bullshit can go on so long as real commodities are still being delivered.  So, I don't know, but this it the first time in quite a while that I have seen such defaults on pretty large orders.  Remember, when real goods and services stop crossing borders, troops will.

billsbest's picture
You can be sure the Spaniards weren't hoarding their nickels!  Are You Ready to Join the Nickel Hoarders?


insanelysane's picture

Mr Peabody: "Sherman, set the Wayback Machine to 2 years ago and we can read how Spain and Italy were going to help Germany and France bail out Greece with China helping too."




Piranhanoia's picture

No one expects the spanish revolution.  Our chief weapons are starvation, unemployment and bank fraud.

LawsofPhysics's picture

what about currency devaluation?

Yen Cross's picture

 These fuckwad politicians "all of them" remind me of those rocket sled tests they do in the desert! 

The "shit wagon", is running full steam downhill on the rails, and a bunch of "Chinamen" are trying to lay tracks around a mountain in it's path, as fast as they can. Everyone knows the "shitwagon" is going to plow into the mountain, because the "Chinamen" can't lay the tracks fast enough , but they just keep hiring more "Chinamen" in the form of QE.


Scalaris's picture

More imposed austerity and half-assed structural reforms; about as useful as a marzipan dildo.

How about some more tax increases, for the increasingly unemployed, underfunded and soon to be underfed population, senor de Guindos?

Can't wait for the Catalan referandum in November, and the -I assume- free tapas festivities (?) .

ParkAveFlasher's picture

"marzipan dildo" I give that a 9.2 on the originality scale.

Print, fuckers, print. 

Anyone remember what they actually manufacture in Spain with value on the export market?  Besides olives and such?

walküre's picture

"marzipan dildo" I give that a 9.2 on the originality scale.

+250 grams

would that be dark, demi sweet or unsweetened chocolate covered ...


ParkAveFlasher's picture

While Europe claims the best chocolate, especially Belgium and their duty-free empire of airport cocoa, it should be known that not a single cacao bean is grown on the European continent. 

walküre's picture

Didn't know they had a trade free zone for cocoa in Belgium. That and the pissing statue have got to the be their two most cherished accomplishments. Oh, forgot they also have NATO HQ and a bunch of expensive Eurokrat pussy wankers driving up real estate in Brussels. Other than that, Belgium is a preferred battle field for whenever Germany seeks to blow a real punch to the Frogs or the Brits.

Schmuck Raker's picture

I think "Fashion"(already #6) will soon be in the top 5 of that list , as northern banks begin stripping shirts off Spanish backs.

q99x2's picture

Looks like Catalonia will do anything to get away from bankster Rajoy. Maybe they can arrest him if he tries to get in the new country. Arrest Rajoy. I like his name except that it sounds like a made up bankster name.

WhiteHose's picture

Cash? we dont need no stinking cash!!!

WhiteHose's picture

Cash? we dont need no stinking cash!!!

GCT's picture

Same story different country.  They are broke and do not need a bailout!  Until they ask for it.  Insert any country you like and the same story will be used. PIIGS and then France coming to the table soon! 

Once Europe is toast and our elections are over, the real trouble will begin.  The USA will be on deck.

EuroInhabitant's picture

Tomorrow the reults of a "stress test". It will be "better (= less worse) than expected" so expect a market rally.

timbo_em's picture

German Bundestag will never allow Spain to simply re-direct those 40B Euros that are supposedly left from that 100B bailout in july. They won't, believe me [said with an Italian accent]! If Rajoy and his buddies want to use some of the money in a different manner, the Bundestag has to edit the old bill or pass a new bill both will include a public debate and media coverage.

awakening's picture

'a 20% tax on lottery winnings'

Those (I don't fwiw) who buy lottery tickets; not only for the chances of winning but, for the dreams of what they would do with the winnings should feel rightfully p***ed off that a full fifth of said winnings (were they lucky enough of course) winds up in the hands of the inefficient bureaucrats that sank their country so low as to need such money in the first place.

That alone (in any country) will cause much more rioting; as taking away the dreams of people who do play these lottery games (again I don't) starves the mind of dreams in much the same way as taking away food starves the stomach (and I'm sure many on ZH know that starvation has historically been a great motivator for change and revolution). 'The pursuit of happiness' is a feature of the obsolete document known as the US Constitution because such dreams (The American Dream?) are as fundamental a requirement as food and all the other necessities of life (no point surviving if you don't actually 'live' and enjoy yourself more or less).

The solution of course is to take this 20% figure in advance and advertise a lower winning figure (advertise a 100 million lottery prize as 80 million instead for example); but given the already inefficient bureaucrats we have across the globe unable to handle more complex issues (as ZH reminds us every day), I doubt such simple solutions would have been within their grasp.


Grand Supercycle's picture

Longs please be careful.

Due to recent central bank intervention and short covering spikes, these daily charts are extremely overextended and significant correction expected very soon: