Spain's Financial Crisis
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Transcript of Spain's Financial Crisis
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Agenda
Spanish Economy before the crisis
The Great Spanish Real Estate Bubble
Economic Strategy
Structural Reforms Fiscal Consolidation Strategy
Funding Strategy
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Spanish Economy before the crisis
Spain economic growth continued during the term of
Prime Minister Jos Luis Rodrguez Zapatero (2004)
The new government continued with liberalization,
privatization, and deregulation of the economy
The GDP growth was robust at around 3% (Europeanstandards.)
However signs of a problem had started surfacing.
Unemployment levels, although down from the highs
of 1990s, were still at around 10%.
The inflation rates were going high and there was an
increasing family indebtness at as much as 115% on
account of rising real estate and oil prices. The
yawning Trade and Fiscal deficit was another matter of
concern.
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The Great Spanish Real Estate Bubble
Spain witnessed a real estate boom starting late 90s.The property prices increased by over 80% between 1990 & 2007.
Much of the boom was fuelled by low interest rates and easyavailability of credit. The average Spaniards desire of owing ahouse was the underlying driver of this phenomenon with activegovernment encouragement.
The Real Estate sector soon came to become one ofthe most important sectors in the Spanish economy,generating employment and causing influx of migrantlaborers.
Post the worldwide economic meltdown of 2007, the
Real Estate boom collapsed.In the period 2007-2008 Spain became the worst effected country
in terms of the sharp plunge in construction sales. Actual saleswent down by 25%, causing the new constructions to come to astandstill. This further aggravated the Unemployment problemwhich rose dramatically to 21% while the rest of Europe was at9.6%.
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And the burst !
Post the worldwide economic meltdown of 2007,the Real Estate boom collapsed.
In the period 2007-2008 Spain became the worst effected
country in terms of the sharp plunge in construction sales.
Actual sales went down by 25%, causing the new constructions
to come to a standstill. This further aggravated
High rates of Unemployment
The Unemployment problem which rose dramatically to
21% while the rest of Europe was at 9.6%.
Creating new jobs incredibly difficult Confronted with wage demands which are unfit for the
less modern economy.
Forced to cut jobs in order to compete, because it
cannot devalue its currency. It is running out of space to
create greater productivity
GDP - real growth
rate
2% (2008)
7% (2007)
9% (2006)
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Spain today..
Over 20% of the workforce is unemployedDeficit equal to 11.4 percent of GDP
Total debt equals 270 percent of GDP
Rampant credit downgrades
Unsold housing inventory levels SIX TIMES
WORSE than America
A "green economy" that strangles two jobs for
every one it creates
Caught between austere misery and a credit
downgradeIMF forecasts NO POSITIVE GROWTH until 2011
The strikes and protests are just getting started
With the amount
of funding Spain
requires, there's no
way the current
eurozone bailout
could meet Spain'sneeds if things got
worse.
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Catch 22
Caught between austere misery and a creditdowngrade
A Loose Loose situation
What ever you do will harm the economy
Onourous debt levels difficult to be serviced
Cut the government expenditure and you devastate theEconomy
Keep the same level of expenditure, you end up going
the Greece way
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Banks at a glance..
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What does it mean to Europe?
EUR Millions Exposure to Spain Exposure/ Tier 1Capital
Spain 203,310 113%
Germany 31,854 21%
France 6,592 4%
United Kingdom 5,916 2%
Belgium 3,530 11%
Netherlands 1,685 2%
Italy 1,383 2%
Ireland 391 2%
Portugal 345 2%
Austria 239 1%
Barclays, Deutsche
Bank, and BNP has
large estimated
exposures to
Spanish sovereigndebt.
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Is Spain a dead Economy walking?
Is Spain the Iceberg all set to sink the Titanic that
is Europe ?
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Governments Macroeconomic Plan
The output gap to be closed by 2013, after
peaking in 2010
External demand contribution to GDP will
gradually wane as domestic demand would
begin to gather steam
Potential growth must recover from a trough
of 0.6% in 2010 to 1.6% in 2013
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Economic policy strategy for sustainable growth
Prudent Macroeconomic Scenario 2010-
2013
Agreement on Fiscal Consolidation to bring
the deficit back to 3% in 2013
Structural Reforms:
Structural Reforms in the goods markets
Public Pensions System
Residential Real Estate Sector Labour Market
Banking sector Restructuring
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Fiscal Consolidation Strategy
Substantial reduction in Spending and moderateincrease in Revenues
Already in 2010 a 2.2% cut in structural deficit
Temporary measures (changes in tax collection, one offinvestment funds) account for 2.4% points of GDP in
2009s total deficit Total size of fiscal policy adjustment (structural terms):
5.7% of GDP
Restraint in wage outlays for all public administrationsthrough:
10% replacement rate No new temporary hiring
Strong moderation in wages
Sizeable cuts in investment, transfers and subsidies
Shared commitment to fiscal discipline and margin to
secure further reductions in the deficit
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Highlights of Funding Strategy
Significant reduction in net funding requirements
and persistence of sound risk metrics
Liquidity, transparency and predictability will
continue as guiding principles for the execution of
our auction program
As for syndications, timing is dictated by the limit
size of the line to be replaced (16.5 bn for longer
tenors) and market conditions
Innovations for 2010: 18-month T-bills reappear,Euro inflation linker still a project
Maintain a stable and diversified investor base
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Thank You
Group 11
Sandeep Deb
Purnendu Singh
Tulika Dhawan
Rahul MalikVijit