Political Crisis Contagion: Zapatero To Dissolve Government On September 26

Tyler Durden's picture

Who says only America has a major political crisis that threatens to destroy the country. Following earlier press reports that Spanish PM Zapatero would dissolve government on September 26 in order to have a new general election on November 20, which were summarily denied by the government immediately, it only took about 20 minutes for Zapatero to make a TV appearance and admit that there will indeed be early elections. And judging by the recent surge in popular protests a government overthrow appears certain, which means that Spain's entire role in the Euro bailout mechanisms will transfer from asset to a liability (which is great for German leadership aspirations for a Fourth Reich in which the fate of the entire Eurozone depends on its, and not the ECB's every whim, broader population be damned), and that Spain can kiss future austerity plans goodbye. The immediate result, though, was another major move in the EURUSD, which tumbled by another 60 pips following overnight news of Spain's downgrade review by Moody's. Overall, the EURUSD moved from a high of 1.4360 on the Boehner news all the way down to 1.4230. Our heartfelt condolences to all FX traders. In addition the Spain - Bund spread is 348, +7 the highest in two weeks, while the Italy Bund spread moved higher by +13 at 332, matching last week's record high. Bailout #3 beckons, only this time the EFSF will be a cool two trillion.

Highlights from Zapatero's TV appearance:

  • Spain to Project ‘Political, Economic Certainty’
  • Will take time to reduce market volatility
  • EU summit steps are ‘greatly relevant’
  • Spain to make ‘extra effort’ to meet deficit targets
  • To take steps to boost employment

More from Reuters:

Spain's leftist government called early general elections for November on Friday, a move which had been widely expected to take advantage of improved ratings for the Socialists in the latest polls.


Spain's struggle to deal with its debt burden and avoid a Greek-style bailout has been central to concerns about a deepening of the euro zone's debt crisis.


Following are details of analysts' and markets' reaction to Prime Minister Jose Luis Rodriguez Zapatero's announcement.




"It's no great surprise. It had become increasingly obvious that the government would struggle to get the 2012 budget through and now it doesn't have to. The opposition People's Party is ahead in the polls and might even get an overall majority, although there is a suggestion they may have peaked. They've been trying to be all things to all men, but they should at least be able to get a budget through.


"That would leave us with virtually no left-wing governments in Europe. It's still not clear what will happen in Cyprus, we still have Greece and then of course there is Norway -- but that of course is an outlier in every way."




"I'm not convinced an election alone, even if it creates a fairly stable new government, will calm down markets. What we've seen in the last 18 months is that there are events that have a short-term impact on the markets."




"(There is) additional nervousness now. Extra short-term risk. (But) it is likely we will get a government with a better mandate to do what Spain really needs, that is more thoughtful labour market reforms."

And overnight EURUSD:

In fact the only thing prevent an all out implosion of the Euro today is the lack of the political crisis contagion to Italy, at least for the time being, where FinMin Tremonti, said that he will not be resigning. When this official party line changes, all hell will break loose. Remember that Italy, like Spain, is also on downgrade review of its Aa2 rating. From Reuters:

Italian Economy Minister Giulio Tremonti on Friday dismissed speculation he would resign though admitted making a mistake by using a luxury Rome apartment belonging to a former aide being investigated for corruption.


"I have a job that is very difficult and involves a lot of effort, and I want to continue doing it, as best I can, in the interest of my country," Tremonti told Italian television, appearing both apologetic and defiant.


"Yes, I have made mistakes, the only excuse is that I've worked a lot," he said.


Widely seen as the guarantor of Italy's financial stability, Tremonti has faced growing pressure over the apartment, adding to market jitters that the country could be next in the firing line as the euro zone's debt crisis widens.


The luxury apartment occupied by Tremonti until a few weeks ago was made available by Marco Milanese, a former aide being investigated by Naples magistrates for graft and influence-peddling.


The minister's weekly cash payments of 1,000 euros for its use since 2008 -- way below its market value -- raised eyebrows among Italian media commentators and the opposition, who questioned whether the payments were a way of dodging tax.


A mood of growing anger against a wealthy political class seen as wringing sacrifices from a long suffering public to balance the budget, has also weighed against the minister.


In the letter to the Corriere della Sera daily on Friday, Tremonti confirmed the cash payments, but denied any illegality.


"Did I commit unlawful acts? As far as I'm concerned, no. Did I make mistakes? Yes, definitely," Tremonti wrote.

We can not wait to see where Europe's political crisis contagion will strike next and add to its already pervasive financial one.

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slewie the pi-rat's picture

tremonti's resignation was announced by tremonti, wasn't it?  or was the primiMini lying about the intentions of the finiMini?  i guess i was just mistaken that the goobermint had announced he was leaving. 

Ahmeexnal's picture

Zapatero, the new "generalissimo por la gracia y mandato de dios"

Bullish for the peseta?

iinthesky's picture

i must say.. people who believe that their income taxes go to pay for roads and firemen and even socialist security are the most irresponsible naive retards its my misfortune to come across AGAIN AND AGAIN AND AGAIN... why? the proof that this is bullshit is now blaringly clear to anyone with a shred of common sense.. if, lets say, even one third of the population is working on the books transferring weekly or biweekly payments to the government, and the government uses that money to pay for these things, then a default is utterly irrelevant for everyone but the banks, right? they can continue to operate as long as people continue to work and buy shit, right? could even give grandma some food and peace and even pay for the freeloading folks who have been weened on the government tit, right? wrong! the obviousness of the truth is that all this would be possible if and only if this graduated communist income tax system actually did what the moronic basketball brain public thinks it does. unfortunately it doesnt.. how much more ridiculously obvious can it get with this doomsday default nonsense being hyped up.. even a child by process of eliminationcan surmise that income taxes go nowhere except to transfer payments to directly to pay interest on the fake made up debt owed to the banks alone. how dense do you have to be to even consider otherwise. when you mail a tax payment to the irs.. check who endorses the check.. i bet you anything its the FRBNY or another federal reserve branch. try it and find out.

Peter K's picture

Damn, those American Tea Parties strike again ;)

Global Hunter's picture

Putting soccer players up as collateral didn't work?

Temporalist's picture

Three cheers for socialism...

GeneMarchbanks's picture

So money is now moving across the Atlantic to the other clusterfuck? ES up today in the US as it becomes all too clear 'markets' don't really price in anything at all.

Ethics Gradient's picture

Have you seen EURCHF?

Europe will soon be able to be bailed out by a Swiss tramp's pocket change.

GeneMarchbanks's picture

Sadly there are no Swiss tramps. They are mostly imported from Eastern Europe as they have an oversupply. SNB intervention in 3.. 2...

BigJim's picture

I don't suppose this has anything to do with the Mexican moves to re-monetise silver?

oogs66's picture

feels like things are unravelling fast again

chump666's picture

doomsday trades are on

chump666's picture

zh hedge is totally on the ball..where the hell are the dr dooms of the world?

Incubus's picture

not enough doom for me.  I only run on premium-grade doom. 

mynhair's picture

It isn't Doom until the 200 dma sings.

errr...squeals like the pig it is...

Dr. Engali's picture

You couldn't ask for better entertainment if you scripted it. I don't know if I'm watching a comedy or a Greek tragedy , maybe both.

whiskeyjim's picture

Spain's structural problems are much larger than pundits care to admit. The issue with high tax progressive style economies is that they greatly incent sending economic activity off the books, turning everyone into a tax cheat. Spain is worse than most. When a significant portion of the economy are scamming the system, everyone is hosed. This has been the problem in Greece for generations, and any travel behind the fallen Iron Curtain will tell you where that leads.

Like a friend who emigrated from Russia says, "It's difficult for any society to be productive when one hand is always out."

Version 7's picture

Spain and Italy going under in tandem would be the perfect dynamic duo for the EFSF.

FoieGras's picture

"Our heartfelt condolences to all FX traders." Because all FX traders were long EUR? I don't get it. FX traders are thriving on big movments and volatility. Condolences would be in order if FX rates did not move. No volatility = no opportunity.

jkruffin's picture

Isn't it hilarious how the House wasted an entire day and night fighting over votes for a bill that the Senate said they would not approve anyway...and Obammy said he would veto anyway?  We have some indigent people leading us...no wonder we are ruined.  Default is the only way to go,  Tea Party Republican better stick to their guns and not vote for these bills....these clowns are trying to throw together a bill that amounts to nothing more than another bank bailout bill to save the crying bunch on Wall Street. 

It is time, and has been time for a while, for Wall Street to take a bloodbath....

Zer0henge's picture

Zapatero Bitchez

jmc8888's picture

Spain needs Glass-Steagall, and their indignatos know it.

Here? We still talk about cutting or printing or taxing....the idiot republican, the idiot tea party, the idiot democrat way.

They are all equally stupid, and equally in the tank for the banksters.  Some are just stupider than others. 

Because according to the above the correct way to deal with fraud is printing, taxing, cutting, or some combo therein? Nope, those are for IDIOTS.

Glass-Steagall is the way. 

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