Spain Officially Double Dips, Joins 10 Other Western Countries In Recession

Tyler Durden's picture

The good news: Spanish Q1 GDP printed -0.3% on expectations of a -0.4% Q/Q decline. Unfortunately this is hardly encouraging for the nearly 25% of the labor force which is unemployed, and for consumers whose purchasing habits imploded following record plunges in retail sales as observed last week. The bad news: Spain now joins at least 10 other Western countries which have (re) entered a recession. Per DB: "Spain will today likely join a growing list of Western Developed world countries in recession. Last week the UK was added to a recession roll call that includes Greece, Italy, Portugal, Ireland, Belgium, Denmark, Holland, Czech Republic, and Slovenia. Debt ladened countries with interest rates close to zero have limited flexibility to fight the business cycle and this impotency will continue for many years." Alas, the abovementioned good news won't last: from Evelyn Hermman, economist at BNP - "The Pace of Spain’s economic contraction may increase in coming quarters as austerity measures bite more sharply." Of course, it is the "good news" that sets the pace each and every day, as the bad news is merely a further catalyst to buy, buy, buy as the ECB will allegedly have no choice but to do just that when the time comes. And something quite surprising from DB's morning comment: "If it were us in charge we would allow more defaults which would speed up the cleansing out of the system thus encouraging a more efficient resource allocation in the economy at an earlier stage." Wait, this is Deustche Bank, with assets which are nearly on par with German GDP, saying this? Wow...

The sorry state of affairs visually:

More from DB:

More important than today's GDP number will be Spain and Italy’s PMI manufacturing number this Wednesday. These are also likely to be soft given the aggregate flash PMIs from last week. So expect the growth vs austerity debate that has started to simmer to build further. For all our talk about kicking the can down the road in Europe over the last couple of years, its really the US that are can kicking. By keeping Government spending high they are keeping the recessionary forces at bay for now but building up more debt for  the future. Its high risk but at least gives them a chance that everything will magically turn out right. Europe is arguably doing the right thing in forcing reforms across the board but its in danger of cutting back too quickly which may actually be counter-productive in the short-term. From the starting point the West had after the financial crisis there is no easy way out. If it were us in charge we would allow more defaults which would speed up the cleansing out of the system thus encouraging a more efficient resource allocation in the economy at an earlier stage. However this could result in a major short-term growth shock which no politician could tolerate. So with our politician's hat on the best strategy seems to be steady but committed structural reforms, gradual austerity but with a free flowing unconditional central bank. Europe isn't there yet and is unlikely to get there in a hurry.

And for central bank watchers:

Whilst on the subject on central banks, the ECB’s policy meeting and Draghi’s press conference performance this Thursday will be important as will another Spanish bond auction on the same day. Auctions themselves are rarely the problem but the price action prior and post event tell us a lot about real demand. For the record we also have French auctions on Monday and Thursday, and a Portuguese one on Wednesday. We will also likely hear more from the rating agencies this week with Moody’s delayed rating actions on European banks. Spanish and Italian banks will be the priority here.

However now that Euroarea April consumer prices declined from 2.7% to 2.6% (despite coming in hotter than expected 2.5%), this may throw a wrench in MS expectations that the ECB will cut rates from 1.00% to 0.75% soon to quite soon.

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Fips_OnTheSpot's picture

Dt Bank moves ZH-style.



slackrabbit's picture

What Douche Bank means is, "Other banks should be defaulted on......please keep bailing us out"

Dick Darlington's picture

I have REALLY REALLY hard time believing those GDP numbers from Spain.

DoChenRollingBearing's picture

+ 1, quite agree, even at almost 6:00 AM, most unusual for me to up at this time.

writingsonthewall's picture

With all the guns out already (QE, LTRO, IMF etc) - what is going to stop this recession?


The answer is NOTHING - the decline will be unstoppable - this is why you cannot print your way out of a DEPRESSION.


I've extended my "no growth" outlook to another 7 years - this is 2 more years than the original estimate.

Dermasolarapaterraphatrima's picture

writing, their goal is not to "print out of recession" is to bonus banks and double food prices every three years.

Hansel's picture

Benron is lolzing at countries who can't print away recession.

Sandmann's picture

Europe's economies have always been interlinked but the Euro has probably made them more more cyclically-aligned because of the interest-rate budget-straitjacket. What is interesting is that the Euro was designed specifically to create a Capital Market as deep and wide as New York to facilitate Finanzplatz Europa based on Paris or Frankfurt. So those two banking centres set out to build a European Debt Market by acquisition and Lending in the belief that there was a support mechanism underwriting any divergent risks -ie. the Euro Membership itself was the elimination of Systematic Risk.

So in addition to the straitjacket there is the Banking Overlay which has acted as if Credit Risk Pooling resulted simply from Euro Membership without regard to national tax revenue streams. It seems very unwise of Banks to lend without regard to repayment conditions assuming they have an implicit sovereign guarantee from the Euro-Bloc....of course this is what they have extracted from Draghi under pressure from the US President.  It is clear that the Euro Monetary System is a Horse designed by Committee or better a series of rescue packages designed to save Banks.

This is patently unsustainable and it would be far cheaper to simply Nationalise All Banks and cancel all Consumer Credit Debt or at least to put it on a LIBOR+ basis. The Consumer/SME SEctor has been saddled with the costs of Readjustment when the Banks are simply incapable of being rescued. It may upset the applecart of the past few centuries of Usury and Penury but the New Political Order which will replace this one will simply expropriate Banks and cancel their claims on each other and on national economies. It is simply a time to Default as Russia in 1998

GeneMarchbanks's picture

As much as you contribute your usual customary sanity, this wasn't one them. Not because the idea is a poor one but because you know it's not an option for the zealots of the project. Technocrats installing themselves shall accelerate, apathy of the populace will increase(both sides of the Atlantic) general decay is in place to continue.

Jim is already there:

Sandmann's picture

I am not advancing an idea so much as positing the future. The fact is once nations start to disintegrate there is no European mechanism to put them back together - unless NATO intends to do that. The collective security of Europe is bound up in NATO not the EU. If Greece fragments and Spain starts to break up into regions there is nothing the EU can do. States like Baden-Wuerttemberg would dearly love to exit Germany and join Switzerland taking 20% German GDP with it.  Northern England would happily break away from the rest if Scotland starts the ball rolling. It is no longer a simply banking problem - the Banks are The Government - it is now a question of how far Left the population goes to seek Justice. I do not believe anyone will get a credible mandate in France on Sunday which means a riven Assembly and Street Protests - I do not think the Greek Election will be definitive even though the Government is rationing ballot papers - and I do not see Ireland going for any more Fealty to Absentee Landlords and may start a Captain Boycott action again.

In short, Regime Survival may dictate Executive Action at NATIONAL level in seceral EU countries which makes the EU Commission and ECB as defunct as the League of Nations. If you want a precedent look at the history of The League and its fine buildings in Geneva - look atbthose countries that never joined; those that left; those that were expelled. Remember that Chamberlain declared wr on 3 September 1939 WITHOUT consulting The League of Nations as he was treaty bound - nor did he consult when issuing a guarantee to Poland in march 1939....nor did Ramsay MacDonald in 1935 when giving Germany permission to build battleships such as Bismarck and Tirpitz in breach of Versailles.


In European Politics there are NO Rules, no Laws - only POWER and retaining it is everything


GeneMarchbanks's picture

So your read on the future is something akin to the Yugolsav situation if I'm not mistaking your wind-sock analysis. Sure the winds are blowing in that direction but perhaps you're getting ahead of yourself. Gauging all these new monetary measures is maybe only second to gauging social mood in difficulty; the latter being more important in my opinion since we are dealing with human action.

Could Spain fragment? Sure, will it? Well, that becomes something entirely different when you realize the potential gains are illusory much like the political power you speak of. The elections will as you say be a non-event. 'Ollande will pick and poke before capitulating in a matter of months. Greece is a wasteland, no election could alter that short term.

Finally, war declaration is history from my standpoint in our oh-so-sad era of War Capitalism. Perpetual, therefore redundant to declare. Mere formality and empty gesture. Eventually those in the actual positions of power will run out of things/places/peoples to declare a war on. Then, it'll be a war on existence itself --it's own as well as all others'-- scorched Earth policy come full circle.

Funny how even consumer capitalism couldn't bring heaven to Earth? Oh well.

Sandmann's picture

the potential gains are illusory


As Lenin asked "Who ? Whom ?"



Ghordius's picture

yes, european politics was always Realpolitik. But it's not Germany or Greece or Spain that are ridden by a breakup angst. IMHO you are projecting Anglosphere worries on the Continent. There is a huge and growing perception gap there, and a misreading in the rise and type of nationalism in Spain, Germany, France, Greece vs the failing of national unity in the US and the UK.

Two examples that have been misread: at the beginning of the crisis the Greek and Italian Parliaments closed ranks for a government of National Unity. We can debate all day if they were not cajoled by Goldmanites, the sentiment was unity. Living in the Anglosphere makes people blind to the fact that the continental "elites" fear since long an exploitation by dismemberment and their impulse is the "Fortress Europe" model, with it's many expressions. Which drives UK policymakers crazy and drives US policymaker to manipulate those tendencies, including when Bush tried to cajole Turkey in the EU, just as an example.

If Hollande wins, you might see the same effect on French politics as when Schröeder the Social Democrat came to power in Germany - a series of bargains between President and Trade Unions and many, many decisions that might look liberal in the short run and nationalistic in the long run. In Germany, this included scrapping the minimum wage.

Sandmann's picture

You are so obsessional about US and Uk that you can only be French. I was actually thinking of SPAIN which is why I mentioned Spain. Rajoy is perceived to be trying to control autonomous regions and I really find your comments to be so much an idee fixe that they are not relevant to the discussion

GeneMarchbanks's picture


To be fair it is under the Secular Religion of those two nations that we have been subjected to live under.

Together, it has been them that have set the rules since BW. You know this. You also know that this is over now. People are pissed seeing only chaos as the result of these policies. UK is isolating itself increasingly.


Ghordius's picture

well, suit yourself to reject my arguments because they sound French. At least you are aware that France does not fully buy in - how to say this delicately - the Generally Accepted View Prevalent in the English Speaking World.  I am happy at taking potshots at typical wrongheaded views about the motivation, attitudes and cultural biases prevalent in the "cloud" of the financial news and blogosphere - particularly those borne by chatting in Londoner Pubs where afterwards - when aired in the papers and the internet - our dear Yankee cousins just nod and say "well, you are European, you know this stuff better than me". ZH is a wonderful place for this hobby and it does wonders for my blood pressure. ;-)

You mentioned

Germany: "States like Baden-Wuerttemberg would dearly love to exit Germany and join Switzerland taking 20% German GDP with it" - I answer: they might love to joke about it (and are pushing for more direct democracy), but they won't, and the Swiss would not take them. No way. National Unity up there, just reunited.

Greece: "If Greece fragments..." - I answer: forget it. National Unity up there, too, and a feeling of being mistreated by the outer world.

Spain: "Spain starts to break up into regions" - I answer: no, don't think so, IMHO it's more in the cards that the regions lose part of their autonomy, again because of a feeling of National Unity when under financial siege. As you mention yourself, this is being discussed by Rajoy and it fits to this new movement. National Unity up, there. And why not? Many Spaniards perceve the Autonomy Movement as a waste of money anyway.

You further mentioned "Regime Survival...", I answer: there are countries where the legitimacy of their regimes is more under threat, esacerbated by electoral systems that allow less dissent to be politically active and partecipate to governments. Further, we are talking here about countries where "Vigorous National Activity" is seen differently than "where English is spoken". Blame the Napoleon Code or fascist tendencies or just socialist ideas.

Of course we will see.

Ghordius's picture

how am I supposed to prove that I'm not French? Why can't I just be european?

Are you kidding's picture

We can only hope!  How I'd love a place full of like minded and skinned people without the riff-raff of "diversity".

Ghordius's picture

sandmann, you are mixing a few things up, the part of " the belief that there was a support mechanism underwriting any divergent risks..." was pure bullshit propaganda by the pushers in the US and UK, same as the usual "straightjacket" talking point.

how much did the GBP devalue? how much better is the UK from that? same percentage?

regarding the "nationalize the banks or default as Russia in 1998" remember that this is quite difficult while all the derivatives link this risk to all major banks globally, all nicely chained together by innumerable bets made with our money

see the case in point Spain, it's not the national bonds that are the problem, it's the regional and the cajas. but it's easier to target the national bond - as HH said sometimes you can't short what you want and you have to find something related...

this "vigilantes run" looks concocted to trigger the relevant barriers and to extract some extra pound of flesh. again. if it wasn't dangerous, it would be boring

Sandmann's picture



Thank you for attempting to correct my spelling Ghordius, but I was perfectly correct in use of English.


The devaluation of Sterling has no bearing on the structure of the EuroZone. The Devaluation was in fact  stupid and has caused a tightening of economic conditions through higher imported food and energy prices killing Consumption stone dead. Sorry Ghordius when Russia defaulted in 1998 it took down Brazil and LTCM which was funnily enough founded by a friend of mine. That did bring down a few banks until the Fed monetized the situation. LTCM is a perfect example of the current situation - with Bear Stearns and Lehman at its heart.


Ghordius's picture

Great links, thanks. I was not trying to correct your spelling (English is not my forte), I was mentioning Nigel Farage's (and his City of London's friends) old and tired tallking point against the former currency grid and now it's second try, the EUR.

According to them, the UK is much better off by being able to devalue at will. No, it has no bearing on the structure of the eurozone, but it would be refreshing to hear them saying that now it's all hanky-dory on Bog Island, thanks to devaluation, strong banking oversight/regulation and of course "austerity".

I'm confused, isn't the case of Russia actually making my point stronger regarding the influence of derivatives? I claim that we transitioned from sovereigns being able to default with some hard collateral damage to a situation where derivatives chained all financials together and make even thinking about major defaults a global headache and impossibility. IMHO, this is highjacking the market with bets based on the nowadays greatest collateral of all, the Too Big To Fail proposition. That is based of course on future monetizations, so our money.

GeneMarchbanks's picture

Reminded me of this article.

''What we did is rely on experience,'' Victor Haghani says. And all science is based on experience. And if you're not willing to draw any conclusions from experience, you might as well sit on your hands and do nothing.''

Aug. 21, 1998, was the worst day in the young history of scientific finance. On that day alone, Long-Term Capital lost $550 million.



By the end of August, Long-Term Capital had run through $2 billion of its $4.8 billion in capital. Even so, the fund might well have survived and prospered. But what started as a run on the markets, at least from Long-Term Capital's point of view, turned into a run on Long-Term Capital. ''It was as if there was someone out there with our exact portfolio,'' Haghani says, ''only it was three times as large as ours, and they were liquidating all at once.''

Sandmann's picture

I think Devaluation for Britain was stupid - the country has nothing to export that would benefit from price-elasticity and too much to import that creates an inflationary spiral that Workers cannot match with wage increases. It is Contractionary but so traditional in Britain - almost a reflex. Cheapen British labour costs by devaluation but with no domestically-controlled export base it is pointless when other countries are facing recession.

I think that we must accept the financial system is finished and with it globalisation. It has made some people VERY RICH but not enough to ensure its survival

Sandmann's picture

not the national bonds that are the problem, it's the regional and the cajas


Not entirely, those Cajas and regional banks have so-called AAA-rated securities on their books as collateral that are effectively Junk They are Junk either because they themselves are degraded or because the pyramid-leveraging on the other side of the sheet cannot be marked to market for fear of implosion. It is not simply that National Bonds are the only way to get at local banks. Northern Rock dominated the UK mortgage market at the peak BECAUSE it needed to issue more bonds to feed its Securitisation SIV in Jersey - "Granite" to fulfill contractual obligations to provide CMOs. 

The demand for Collateral is what drove the CMO frenzy as Synthethic Treasuries were manufactured to meet demand for AAA-Securities. Mortgages were required by Bond Markets not vice-versa.

Long ago a Partner at Tramell Crow once told me "giving money to developers is like giving whisky to Indians"  - but Bond Traders needed new product and the pipeline is what drove the mortgage market.

There can only be DEFAULT...there is no other option. The REAL BALANCE EFFECT is the most powerful force in Economics and futile efforts to delay it is like avoiding The Grim Reaper

The4thStooge's picture

What is it that we're supposed to do in May again?

PR Guy's picture


Bet against the herd :-)



PR Guy's picture


Bet against the herd :-)



Dick Darlington's picture

And muppet ALERT: Goldman "report" out saying they're bullish on spanish debt.

i-dog's picture

Ruh-roh! ... that's not good for Spanish debt.... LOL.

Belarusian Bull's picture

Italy -6% ?!?!?!?



Randall Cabot's picture

25% unemployment for months and Spain just now entered recession?

PR Guy's picture

Every time a country in EUrope goes into recession (not that any of them really ever left it), the politico's keep telling us it's a "technical" recession.


Well, that's alright then. Why didn't you say so before. "Technical" eh? Who'd have thunk it?

Element's picture

I just can't understand this!  These economies should be borrowing, printing and spending like there's no tomorrow! 

How else do they expect to get out of this, if they don't blow even bigger bubbles?

Oh ... they did ... hmm.

Ok, that's me done then, I'm fresh out of other people's previously tried and failed mad-cap brain-farts.




Ben Bernanke

i-dog's picture

He's tried Plan A (print)...then Plan B (print)...and Plan C (print). Plan D (print) also didn't work, and Plan E (print) also seems to be failing.

One might guess that he'll try Plan F (print) next...It's sure to work!!

Thank Dog he's got all those tools at his disposal (reference to Timmaay intended).