Amidst the post-election crisis, concern about the DUP, Brexit and anguish abut the tragedy at Grenfell Tower it has been easy to miss other events, but the rest if the world has gone on.
In Spain there has been a bank failure. The seventh largest bank, Banco Popular, failed his week after a bank run of €3.6bn. The hints at shades of Northern Rock, and was the first ever run in the eurozone. The result was that the EU organised a hail out by Santander, which will require a €7bn rights issue to provide the capital to cover the cost. It does not takes a very long memory for the panicked takeover of HBOS by Lloyds to come to mind.
Does this matter? Yes, not least because the eighth largest Spanish biggest bank, itself a combination of three other previously failed banks, is now also apparently teetering on the edge.
Please note, I am not saying this is the start of the next financial crisis. No one could be that bold or unwise. Partly that's because Spain has never got over the 2008 crisis, and nor have its banks. The problem could be local in that case. But that is what everyone said when French banks ran into a crisis in 2008 and that was not true, of course.
With luck a Spanish banking crisis can be contained. But a wary eye is required on what might be a fast developing situation precisely because banking risk is contagious. And if there is a crisis coming we need to be ready. It is, however, not at all clear that we are precisely because the Conservatives have spent most of their time wallowing in nostalgia for 2006 and earlier years rather than preparing for such an eventuality. So UK banking still has not got a ring fence around High Street operations in place, despite having had eight years to do so. And whilst bank reserves are undoubtedly better than they were in 2008 toxicity could still spread remarkably quickly. If it did we would have to bail out all banks again and that would only be because this government has refused to act with appropriate speed.
Does that sound familiar?
The cowardly state is all around is. We have no idea what the cost of it will be is yet, but I have little doubt that we have seen the end of the burdens it will impose.
Hat tip: Andrew Dickie
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When I was wandering around Salamanca and other places in the interior of Spain not long after Franco, and looking to change money, I was assured that Spanish banks were entirely reliable. They certainly were in those days. Mind you, in Franco’s time if they were caught out taking chances they could be shot.
There was talk fairly recently of the Italian banks facing crisis so the Euro zone is by no means stable. Greece is still in desperate state facing 7 billion euro payment to ECB in July. Portugal, Cyprus and others are by no means safe.
Which is why you should be worried about the UK’s growth in the first quarter of 2017 being the lowest in the whole EU, lowest in the G7, and lower than average in the G20, with inflation set to hit 4.1% by the end of the year driven by a weak pound that fell 20% straight after the Brexit vote – very bad for a country that imports more than it exports – and that retail sales are declining in an economy that depends so heavily on consumer spending for its growth. Austerity in Greece made things worse, just as it is making things worse in the UK.
If Greece had had a currency that was able to fall 20%, perhaps it might not have been as bad for them.
‘If Greece had had a currency that was able to fall 20%, perhaps it might not have been as bad for them.’
Indeed, so instead of the ability to devalue the IMF forces ‘internal devaluation’ where wages are cut to increase export ‘efficiency.’ This then reduces aggregate demand in the economy and a vicious cycle is set up.
From:
The Spanish financial crisis:
Lessons for the European Banking Union
Miguel Otero-Iglesias
Sebastián Royo
Federico Steinberg Informe 20 | March 2016
“The last lesson that can be learned from the Spanish banking crisis is that ultimately
in a systemic crisis the only actor that can stabilise the financial system is the
sovereign by using taxpayer’s money.”
“Unfortunately, the euro is still an orphan currency without a state, and this makes
it a fragile construct. The European banking union is only a half-built house.”
“The final lesson, therefore, is that the members of the Eurozone will eventually have
to pool their fiscal sovereignty in order to effectively deal with future European
banking crises. The current bailing-in regime might be robust enough for individual
bank failures but not for a systemic crisis engulfing some of the biggest banks in
Europe…”