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This is a farce. Spain is bust. So too is Italy. France will be next. We have already forgotten about Greece and Cyprus. They are buster than bust. Yet the leaders of the Evil Empire and the IMF just arse about pretending it is all under control. “Don’t panic” shouts Corporal Jones. Das is Gut says Frau Merkel as she announces that she is off on holiday for a month. The Spanish are relaxed. Just ban short selling for 3 months and if we remove the evil speculators everything will come up smelling of roses. Well at least not like the streets of 10 Italian Cities where the trash is 10 foot high and the schools will not re-open in September because there is no money. But that in no way implies that Italy itself is bust, says whichever bloke is leading Italia this week. Yeah right. Of course not. So there you have it. It is all about dealing with evil speculators and we can rest easily. Bollocks.
Spain first. I cover this in detail in a video I recorded on Saturday and you can watch that here. But to recap. Spain has just received a 100 billion euro bailout so that it can recapitalise its banks. Its debt to GDP ratio is 72% but increased by 9% in the past year. In return for this bailout ( and the ones that will follow but which we are not admitting to right now) it is implementing a savage austerity programme which is pushing unemployment (24% on official numbers which are of course total lies) sharply higher on a day by day basis. Take away the subsidies and it is not just Ryanair’s O’Leary who goes (2,000 jobs lost at a stroke) but whole swathes of industry shuts down. The IMF reckons GDP will shrink this year and next. No shit Sherlock. Nobel prizes all round. That of course will mean more bank bailouts, etc, etc.
Now that is why Spanish bonds yield 7.5% today. That is after the bailout that was meant to stop all wars, I mean bailouts was agreed. Spain needs another 400 billion and some. It will be handed over in dribs and drabs but my guess is that not only will Spain be unable to refinance debt as it matures pretty soon but that debt/GDP ratios will be in the 90% plus ( i.e. beyond the point of no return) by 2013. Spain is bust.
So too is Italy. Its debt/GDP number is already 120%. As the Spanish crises lurches on folks now look at Italy as the next slam dunk candidate for eventual default. It is not just Cities who are bankrupt so too are whole provinces like Sicily. We all know this is down to endemic corruption over many years but that is not the issue now. The issue is where does Italy get the cash it needs from. Its bonds now yield a level suggesting that the answer is the ever shrinking number of EU members who themselves are not yet bust.
The spread of the disease is a direct result of the way the EU operates. Because it never brings in a big enough bazooka at an early stage of a crises, that crises drags on so causing contagion elsewhere. Hell’s teeth, Greece was bust two years ago yet we are still pretending she can be saved. Over here, parts of Athens now resemble downtown Beirut in the bad old days, folks have just given up yet the Evil Empire blathers on about the next phase of austerity and bailouts.
After Italy look to France. Debt/GDP is 85% and with a loon if the highest order now in charge, driving down tax revenues by scaring off the wealthy and spending even more money on things he should not be doing, France ‘s credibility is heading for la poubelle d’histoire.
Banning shorting of all stocks in Spain for 3 months and of Italian financial stocks for a shorter period will not change anything. Folks will still want to sell shares because a) they have no jobs/cash and b) because Spain/Italian banks are going bust so selling is a rational step. And why would you wish to buy shares in either a Spanish company or an Italian bank? Yup. So these stocks will go down anyway. But that is not the point. Frankly you could close the entire Spanish bourse for 3 months so share price are bound to stay where they are. If (sorry when) the Spanish economy goes pop, then a lot of Spanish listed companies will go bust. Their shares will crash to zero/near zero however the Spanish Government tries to rig the market. As for the Spanish banks themselves well they are all effectively bust. Their balance sheets will need recapitalising over and over again as more bad debts come to light. So, assuming the grateful Spanish (by which we mean German) taxpayer bails them out there must be pretty much 100% dilution there.
Banning shorting is a sign of utter desperation rather than a strategy for dealing with any real issues. It will achieve nothing. I am sure that Frau Merkel’s vacation will be interrupted. All the Euro leaders will be having yet another emergency summit to solve the problem once and for all before the start of September. They will not solve anything. This will drag on until 2013 but by then the bankruptcy of Greece will seem like small beer, given what will happen in Spain, Italy and eventually France.
