The coming worldwide credit crunch

Hi All,

Was just wondering....what happens to our properties in Spain that are still mortgaged if the Spanish economy goes bust, or goes back to Pesetas, or if the particular bank that we have a mortgage with goes bust?

What happens if the Euro disintegrates?

 http://www.spiegel.de/international/europe/0,1518,761201,00.html

There is no choice but do it now or later. If they choose later the whole of the Eu banking system could go down. This is what happens when you put your head under the sand and whistle loudly. 

 Crisis meeting this weekend in Luxembourg. No smoke without fire. I expect they will kick the can down the road once more, but it can;t be done forever. Each time they put it off the final damage gets bigger.

 EUR/USD moves 560 pips in two days - so much for the rumour. Even the poor old GBP is getting a bid.

 Senior Greek official denies threat.

Either way its a train wreck. They simply cannot repay their debts BUT a restructuring would wipe out their banks and a number of other EU countries. Any one watch Trchet yesterday when asked about Greek restructuring by a news reporter - answer - next question please. Denial all the way. The longer they leave it the worse it gets. Same is true for all the Med - just on a longer time frame.

 Breaking news

Greece threatens to leave the Euro and introduce own currency. The collapse begins - 

Bring you more when i get it.

No one no one could possibly have predicted this!!!! What a complete disaster the Euro is. Who is next i wonder?

  EU's Rehn says "We do not see Greek debt restructuring as an option" 

As Greek three year debt hits 18% what does he suggest?

Perhaps he could arrange for the boys with baseball bats to visit Greece.

 http://www.forexyard.com/en/news/Portugal-main-union-considering-general-strike-2011-04-14T135513Z-INTERVIEW

LISBON, April 14 (Reuters) - Portugal's largest labour union is considering calling a general strike as it steps up protests against painful austerity measures that are expected to deepen under an EU/IMF bailout, its leader said on Thursday.

"A general strike is an instrument that is on the agenda," Manuel Carvalho da Silva, leader of the 725,000-strong General Confederation of Portuguese Workers (CGTP), told Reuters.

"This is not the time to be silent. It has to be the time for protest, action and responses," he said.

Portugal launched talks on Tuesday with European authorities and the International Monetary Fund on a bailout that is expected to total 80 billion euros. The bailout deal is expected to include further tax hikes, spending cuts and privatizations.

Carvalho da Silva said the union rejected "external intervention" as it would stoke a rise in poverty and unemployment.

I think this is the danger for Spain, as Zapatero goes from reckless socialist to Cameron conservative. How much voluntary austerity will the Spanish people accept as wages and property and jobs hasten their decline under the cuts? How long before the people of Spain do the same thing and strike, peacefully or otherwise. Lets just hope it remains peaceful in all these countries. Trichet who is leaving shortly, ups the ante with rate increases and says the Med people can handle it.

Chinese Premier Wen Jiabao tells Spanish PM Zapatero that China will help fund Spain banks restructure, according to Spain's government source

 Apart from SEAT (Which I thought was of Italian, not German, origin but hey ho) they also produce cars for Volkswagen,Nissan, Daimler Mercedes-Benz, Ford, Renault, GM/Opel, PSA Peugeot/Citroën, Iveco  which they export.

Obviously they are one of the larger olive oil and wine exporters and, go to any supermarket in UK, and see where the fruit, onions, garlic, tomatoes etc comes from.  The fruit and vegetable exports alone came to $8.3 billion in 2010.  Their civilian aircraft industry (complete aircraft) overtook that of UK some years ago.  They export around 10 billion dollars of goods to the US alone.  However, they have a severe balance of trade (more imports than exports) due to the lack of oil and the strength of the euro.

They also produce a large amount of the pharmaceuticals used in the USA and Europe.  So. yes, they do export quite a bit.  Obviously this isn't very apparent on the Costas but, hey, there's a big other Spain out there.

Does Spain export anything? (apart from a few SEATs, which are German anyway)

 Its worse than that...

It turns out that for the bailout countries of the Eurozone, the debt repayments are linked to the Euro base rate, so as it goes up so do the already unaffordable rescue loans.

As I said ages ago the Euro was always doomed, it was just a question of time before the "one rate fits all" policy ripped the union apart.

For Spain a rising base rate will kill exports, the only real source of growth. As exports decline there will be even more unemployment and falling revenue will will hasten the crisis and put even more private and commercial loans back to the banks.

Spain's real achillies heel is its banking sector which is choc a block with bad loans that need to be nationalised. Unlike the UK and the US, it does not have the money and cannot print it up, so when the tipping point arrives for the banks, it will be rescue time for Spain.

The problem is that the rescue fund is all used up and public good will for any more is gone. The rate increases are pushing up the euro against other major currencies, making the Med less and less attractive for tourism.

What ever way you look at it the Euro is doomed, it seems that finaly the major press is catching on.

http://www.telegraph.co.uk/finance/comment/rogerbootle/8441470/Eurozone-ship-is-on-the-course-that-was-set-for-it-heading-for-the-rocks.html

"In other words: don't panic; it will be all right on the night.

It won't. The eurozone is heading for the rocks.

So euro rate up by 0.25% - what does this mean to us here?

from Money Week:

"The euro could be heading for carnage

For now the ECB is hedging its bets about how much higher – and how fast – it will lift interest rates. Morgan Stanley reckons official rates will be up by 2% by next spring. But even a gradual series of hikes would be likely to push up the value of the euro in the short-to-medium term.

For peripheral countries already having problems boosting their exports, this would be very bad news. That’s because without growth from this source, they’ll find it yet harder to grow their economies quickly enough to service their debt repayments. In turn, that could force up the interest rates they’ll have to pay on their bonds as default risks grow.

What’s more, this isn’t just about state borrowing. The eurozone’s peripheral countries have plenty of debt-laden households who are struggling to pay their interest bills. Higher official rates are likely to be more than passed on by banks whose own finances are in a mess. This could push many of these households over the financial edge.

In short, it could all develop into a vicious downward spiral. Which could eventually push some of these peripheral countries out of the euro altogether. That could lead to financial carnage. It would almost certainly cause a lot of volatility in the euro’s value."
 

Discuss.

Also post Greece I understood there was to be a contingency fund setup in case this situation arose again and I thought part of the agreement was the UK did not have to contribute.

I think the UK is liable to contribute to any euro zone bailouts until 2013.  After that, I think the euro zone countries have to sort their own mess out.

Personally If we hadn't sufferered a massive financial loss elsewhere we'd be buying in Spain right now.......we'd be searching the Barcalona area for some good deals as there are still opportunity out there. 

On the Euro front.......well it should be far weaker than it is against Sterling with two countries already gone to the dogs and Spain's financial situation under close scrutiny.  Clearly the UK Government is devaluating sterling to make exports cheaper.

I don't see why the UK should contribute to Portugal's bailout after all they use Sterling not the Euro........Also post Greece I understood there was to be a contingency fund setup in case this situation arose again and I thought part of the agreement was the UK did not have to contribute.

Yes Bob

But according to the BBC this has already been factored in by the markets and it is still expected that the ECB will raise rates tomorrow, where as the uk will probably leave rates unchanged so no upside for those wanting a rise in the value of the pound.

Of course the question as always been - What about Spain, what next?

s

 So, Portugal has succumbed.  Now asking for a bailout and has joined Greece and Ireland.

Bailout request

 http://www.businessweek.com/news/2011-04-04/trichet-seen-burying-ailing-nations-with-interest-rate-rise.html

When does a serving PM not seeks re election? Answer when your Zapatero and EVEN you can see what is coming.

Trichet meanwhile has an impossible job on his hands. Inflation is showing up everywhere in the euro zone and to maintain even a shred of credibility he MUST raise rates. Germany is growing too quickly and rates are not just low, but emergency low.

However the peripheral nations are on their knees, addicted to cheap credit, with a population staggering under debt loads at CENTURY low rates. What is trully incredible is that people are in so much trouble and the banks insolvent. and interest rates haven't even moved yet. This gives you some idea of how silly the market had got.

If Trichet wants to avoid a currency crisis in euroland he must double base rates and then double them again to get them back to anything like a normal rate. 

You don't have to be an economist to predict what this is going to do to the Spanish property market. Zapatero is probably looking forward to spending more time with his family and getting as far away from this slow motion train wreck as he possibly can.

 Norman

I have just this last week returned from my Marbella apartment and had a wonderful time the weather was 26 degrees we visited two new excellent restaurants it was all perfect, found new car hire firm much cheaper and better only needed to paint a bedroom wall which is unusual after renting out on the short term lets.

If i was you i would stay completely away from buying property in Spain unless you have money to waste the cost of living in Spain has rose dramatically over the last 4 years

I do know people who want to sell desperately in our complex but cant and some units are bank owned

But would I buy another NO one holiday home is quite enough 

At your time of life i would just hop on a plane and not have the hassle

Regards Rod

Norman 

If you visit www.trentriver.eu it will help you to know my position I am not privy to Mr Buffets buys and sells its commonly accesible via certain web portals and research sites my company subscibes too

I personally invested in this company because they are developing battery powered vehicles which in another 20 years may be how we all travel arround when the Oils nearly gone 

ps I am not advising anyone to invest in BYD as it is speculative I just invested what I could afford to completely lose if it went wrong.

Regards Rod