Saturday, 29 September 2012

The Pain to come in Spain

City-types may wish to download Oliver Wyman's report on Spanish bank debt from HERE; released yesterday, that underpinned the estimate of €60bn for Spanish bank recapitalisation. Behind the figures are a sea of human misery to come. Some 42% of the bailout total - some €25bn - relates to projected defaults and foreclosures on retail mortgages, with 86% of this relating to '1st residences' - people's homes. A further 7% relates to second homes, but under the Spanish system in which all the assets of a defaulting borrower are liable, rather than just the subject of the loan as in the UK, it means up to 93% of struggling borrowers could lose their homes by 2014. Potential defaults are estimated from 7% (base case) to 15% (adverse case) of existing mortgage-holders. With around 2.5m retail mortgages in Spain, hundreds of thousands could lose their homes. 

As predicted, the LTV figures on the banks' books are a crock. Or as Oliver Wyman puts it rather more diplomatically, "potentially latent risks not recognized in the banks’ balance sheets, such as outdated house price valuations that are not correctly reflecting present property values". Overall the banks are admitting 62% LTV, which Oliver Wyman thinks should be between 85% (base case) to 99% (adverse case) at 2012 - 2014 OMV. Lenders in Spain are limited to lending a maximum of 80% of a property's value - if OMV drops below this, borrowers are liable for the shortfall, and all of their assets are included in the liability.

However, some economists think even the awful figures revealed in the report don't reflect the true scale of the problem. The NYT published a piece on the 24th, four days before the report's release, the predictions of which are not inconsistent with the official report, but with a harsh conclusion;
Borja Mateo, author of a recent book on the Spanish real estate market, said there were now 1.9 million housing units for sale in Spain and about 3.9 million that could go on to the market in the coming years. With current housing demand now at about 175,000 units a year, Mr. Mateo predicted the glut would cause home prices eventually to fall by 60 percent (OW predicts -30% between 2011 - 2014 - ed). Because the typical Spaniard has 80 percent of his or her assets tied up in real estate, a plunge in prices of this magnitude would be devastating. “What we are seeing,” he said, “is a massive impoverishment of a country.”
 And the impact on troubled Catalunya? Not good:


Friday, 28 September 2012

Trans-Carpathian Ruthenia

It's been a while since the land of Trans-Carpathian Ruthenia featured here - I think the last was my description of the twin Christmas celebrations in Uzhgarod (Uzhorod, Ujhorod, Ungvar, Ungwar), the capital of this, er,  Polish / Hungarian / Czech / Ukrainian / German / Romanian region. Now I've found a wonderful website that describes all you can see in a weekend in TCR;
  • The River Uzh (Uj, Ung) with its unspoilt power plant and many happy fish that flows through the capital, where you may visit the State Museum of Folk Architecture
  • Some old castles, some of them not fallen down
  • Berehowe, an important city with a population of 26,000 and a palace of Justice which is nice
  • Uzh national park - here there are bears and other plants
  • Mountains - currently forests cover three quarters of Trans Carpathian Ruthenia and the rest is frequently mountain. The peak of the highest mountains are occupied by valleys.
  • Viaducts and railway tunnels amongst the most picturesque in Europe
  • Uzhocky Pass - the source of the Uzh. Here you may be shot if you try to cross the border, which is prohibited
  • Vine plantations on the banks of the Uzh that makes wines similar to Tokaj but no-one outside drinks them
  • Nationalities and ethnic groups; Transcarpathia is inhabited by numerous national and ethnic groups. Here lives next to each other Slavic people, Finno-Ugrics and the Balkans: Hungarians, Slovaks, Romanians, Ukrainians, Croats, Russians, Poles, Roms and others including Huculy, Boyko, Lemkos and Roma, the ethnic balance intact and conflict-free existence. 
You can travel there via Uzhgorod International Airport, with one terminal and regular flights to, er, Kiev. 

The cuisine is said to be unique. I think next year's travel plans are shaping up ...

Thursday, 27 September 2012

Passionate Ambrose

The Editor of the Telegraph has been singularly indulgent, I think, in publishing Ambrose Evan-Pritchard's latest comment on the Spanish crisis. Ambrose is clearly as infatuated with The Lady as a teen, and his piece is from the heart, and in no way bad for that. I can't claim to be immune to the same mooncalf attraction myself.

The stitch-up he refers to, but neglects to explain, is rather more coolly described in the FT. Or the WSJ

Tomorrow (Friday) Spain is due to reveal the resources needed for the new 'bad bank' / 'cleaning up the other banks' deal, following today's radical but positive budgetary measures. The markets, I assume, will wait until then to react.

Wednesday, 26 September 2012

Cuidado, Querida España

As a postscript, I strongly recommend this well-hidden piece from the Telegraph site by Ambrose Evans-Pritchard
The Draghi bond plan can certainly put off the day of reckoning. It can lower borrowing costs across the board and cushion the slump. But it cannot in itself stop the slow asphyxiation of these societies. We are moving from the financial phase of this crisis to the full-blown political phase. It really is playing out like the 1930s.
Beware, Dear Spain indeed. 

Madrid rattles its sabre. Softly.

Catalunya has its own independent police force, the Mossos d'Esquadra, under the command of Artur Mas and the Generalitat. Since 2008, they have replaced almost completely in the region the Guardia Civil and Policia Nacional, both of which are under the control of Spain's Interior Ministry. I remember one rare occasion when I took a cab back to Barcelona airport the driver's nervousness at encountering a national police roadblock on one of the airport approach roads. The national forces retain jurisdiction in Catalunya over matters such as terrorism, firearms, immigration and port and airport security. The driver's mumbled warning made clear there was no love lost between the 'Madrid' police and the locals. 

And now as Madrid, with Berlaymont's encouragement, is gently back pedalling on many of the power transfers to the ARs, policing is not exempt. The military are making bellicose noises, and Rajoy is walking on eggshells in having to defuse this spike of Catalunyan nationalism as a test of civilian political competence. Madrid is moving its tanks slowly onto Mas' lawn, albeit softly and with rubber tracks. It has instituted joint patrols in Castelldefels and Saint Boi between the Mossos and the PN - a move it is being claimed that is increasing tensions locally between the various force commanders. Further moves to push the local jurisdiction to be more proactive in identifying the holders of firearms to the national authorities are also seen as trespassing on Catalunya's autonomy, though this is a legitimate national competence.

The Interior Ministry has also upset the Bombera, the Catalunyan fire brigade, by ordering that 'Starry', the Catalan flag, must not be flown at fire stations in the region. A Bombera spokesman responded "When a law is unjust it is more correct to disobey it. Independence is the path to dignity - Starry everywhere!"

This is one to watch.

Tuesday, 25 September 2012

Catalunya and Harrogate

I'll come back to the Harrogate Agenda in more detail, but for now want to focus on the single issue of raising taxes. Currently in the UK 95% of tax is determined and raised centrally, and as local government has become little more than Whitehall's branch network, it's fair to say that 100% of spending is determined centrally. Harrogate proposes that taxes are determined and collected locally, with a precept being paid over to the national government for those functions such as defence that can only be performed at state level. 

In Spain, spending decisions are already largely devolved to the Autonomous Regions (ARs), the Madrid government controlling the spend of only some 18% of all tax raised. But Catalunya wants more - the region wants to raise all taxes itself, and pay a precept to Madrid, rather than Madrid collecting the money and distributing it, as at present. 

What's behind this is the same reason that prompted Harrogate's recommendation. Catalunya fears that Madrid is forcing austerity measures on the regions whilst escaping cutting its own budgets, and wants the power to force budget reductions on the national government.  

And here we need to question all the assumptions about EU regional policy. In the main, it's been a mechanism for distributing regeneration funding through ERDF and ESF rather than encouraging regional identities; in fact only 2.5% of the budget is devoted to the development of regional identity. Berlaymont would much rather deal with just 27 state governments than the 344 regions represented on the Committee of the Regions. Subsidiarity in Europe is like Localism to Cameron - just a word. The EU is as centralist in reality as any oligarch. In the face of rising nationalism throughout Europe, the EU is actively discouraging any regional independence; both Scotland and Catalunya have been told that independence will put them back at the start, as candidate nations. Barcelona should not look for help from Brussels - it won't get it.  


Monday, 24 September 2012

Guesses please

(1) Which way into No 10 will Andrew Mitchell use for tomorrow's cabinet meeting?
(2) Will he arrive in a government car, on foot or by cycle?

Remember, the Chief Whip's office is at No 9 and he can duck in and out via either Whitehall or Horse Guards Parade and via the Cabinet Office or FCO buildings ...




EuroVegas

To put Cable's £1bn to small business lending in perspective, the proposed cost of a new EuroVegas to be built on the outskirts of Madrid is €22bn. The brainchild of Tea Party stalwart Sheldon Adelson, the resort will be Europe's casino capital, planned to attract millions of visitors a year. With 20,000 hotel rooms, the resort is predicted to create either 260,000 jobs (Adelson) or 200,000 jobs (Spanish government). Critics say the difference is that Adelson is counting the prostitutes. Indeed, critics are predicting a veritable EuroSodom in which prostitution, drugs, racketeering and money laundering will flourish, an impression not aided by Adelson's insistence on freedom from Euro employment laws and a derogation from Spain's smoking ban in the resort. 

So, a wild, lawless morass of sexual excess and cheap hotels and restaurants subsidised by gambling ninety minutes from London? It could be huge. Those of London's straw-donkey pink-dralon and gold-sovereign semi-crim classes currently drawn to the Costas will flock there. There will no doubt be several English Pubs serving Stella and sausages and Bollinger and the illegal Brazilian tarts will no doubt learn a few words of English. 

Of course as Adelson's company is only putting up 35% of the equity, the bulk of the investment will have to come ultimately from, er, Germany. Through the bank re-capitalisation. The irony of the prudent Saxon hausfrauen funding orange dancing girls in spandex thongs for the benefit of London City boys splurging their bonuses is truly delicious.

Sunday, 23 September 2012

Opinion fatigue

With apologies, but with the cleansing feel of Autumn in the air a minor bout of opinion fatigue has descended. A couple of aspirin and a Monkey Shoulder toddy should see things back to normal, but until then here's a brief interlude;

Andrew Mitchell? Jumped-up oik pretending the status of a gentleman. Needs a good horse-whipping to remind him of his place. New Archbishop? Please God not another hand-wringing effete moral relativist. EU Referendum? I just wish our lot (the antis) would get the story straight on this. Mohammed film / cartoons / hentai porn? - sod the primitive natives; the goat-belt needs an Enlightenment. LibDems? Who? Mitt Romney? Clearly not a man who can walk and chew gum at the same time. Death penalty? No. Next. iPhone 5? Overpriced tatty bling for sociopaths. Mansion tax? Anyone owning a £1m+ home built after 1915 (unless its a genuine Lutyens) should be taxed for tastelessness. The money raised should be paid as tax-relief on maintenance to those who are preserving pre-1915 £1m+ houses for the good of the nation.

OK, there should be enough there to keep things going for today.