Perhaps the best measure to gauge the European recovery is by the soaring number of companies going bust, because only from this perspective is Europe finally "fixed." As Reuters reports citing a report by Axesor, a record 2,564 companies filed for "insolvency proceedings", a more palatable version of the word bankruptcy, in the first quarter - an increase of 10% from Q4 and up a whopping 45% from Q1 2012. The reasons given: "tight credit conditions and meager demand." Or in other words: no actual cash flow to fund demand for products and services. Obviously it will take some truly phenomenal massaging and manipulation to represent GDP as rising in this environment, but we are confident the Spanish authorities are already on it, and somehow the Spanish pension fund, already 97% filled with Spanish government bonds, will somehow have a finger in yet another completely unbelievable economic print which will fool most of the algos most of the time on flashing red Bloomberg headlines.
"Most Spanish businesses did not prepare for a crisis this big or this long, which could be a determining factor," said Javier Ramos-Juste, head of economic studies at Axesor.
Spain has been in its second recession in five years for the past 18 months and unemployment is more than 25 percent.
A credit freeze, liquidity problems, late payments and poor risk management contributed to the record number of bankruptcies since Spain's insolvency law changed in 2004, Axesor said.
Almost 28,000 companies have filed for bankruptcy since Spain's economic crisis set in five years ago, Axesor estimates.
Banks have tightened lending after a property boom turned to bust in 2008 and face stricter regulation since Spain received a bailout of about 41 billion euros ($52 billion) from international creditors last year.
Naturally it is the evil banks' fault for not lending out money.
What is not discussed is that with deposits flying out of the door, the local banks simply don't have the cash to make such loans. What is also not discussed is that even in that stalwart of economic growth, the USA, total commercial loans as of last week were virtually unchanged from the date Lehman filed for bankruptcy, at just over $7.2 trillion. But at least the US has a Federal Reserve which does not mind being the bad bank for thousands of businesses that otherwise would have gone insolvent if only it weren't for an abundant source of zero-cost credit.
And with the banks engaged in simply chasing the stock market, while the Fed still has $85 billion/month of liquidity injections and deposit creation to do for at least year longer and possibly, forever, expect the unprecedented misallocation of capital to continue until such time as there is absolutely no more end demand and the Fed is forced to not only fund company balance sheets but to be the last resort buyer of goods and services. Which it will eventually become before it is all over.