Spanish Banks and City Councils still in Dire Straits;Portugal Ratings also get cut by Moody's

The Spanish Financial sector is still in a precarious condition which is underscored by the record European Central Bank (ECB) borrowing . The indications of weaknesses in Spanish banking sector arose as Cajas were forced to merge or taken over by the Spanish Central Bank.These Cajas are considered the weakest spot due to their poor management and weak accountability.Even big Spanish Banks like BBVA locked out of foreign lending markets.It not a wonder then that these banks are borrowing huge amounts from ECB whose lending window will close in July without further extensions.The Euro has been appreciating against the Dollar and stock markets are rallying despite Portugal downgrade by Moody’s.However the condition of the PIGS remains precarious as ever  despite budgetary cuts and talk of fiscal prudence.

Spanish City Councils are finding it difficult to fund their activities as taxes have dropped steeply in the wake of the bursting of the real estate bubble.With unemployment high at around 20% and economy barely chugging along,there are no revenues to pay even the council workers.The weakened Euro has only helped the formidable German industrial machine,as the PIGS lack the industry to take advantage of a weak currency.Portugal which has managed to escape the crisis so far,has had its ratings cut 2 grades by rating agencies Moody’s.These countries face a dilemma as they need to control fiscal deficits at the same time they need to spur growth coming out of the GFC.

Spain ‘relying on short-term funding’ as councils go bust – Telegraph

The great majority of councils in Andalucia are already in deep crisis – either insolvent or muddling through from day to day. More than 400 of the 8,000 councils across the country have stopped paying electricity, water and telephone bills, according to Spanish newspaper El Economista.

Council debt is just 3pc of Spanish GDP, so default risk is modest. The greater worry is political as Spain’s depression grinds on. The latest Consenso Económico survey forecasts that GDP will contract by 0.8pc this year, with zero growth next year. Unemployment is already 19.9pc. The lesson of the early 1930s is that once slumps last much beyond two years they start to engender serious social tension.

Spain Banks’ ECB Borrowing Surges to Record High – CNBC

Borrowing by Spanish banks from the European Central Bank surged in June to a new record high, indicating tight access to funding before the expiry of 442 billion euros in one-year ECB loans at the start of July. Data from the Spanish central bank showed banks borrowed 136.49 billion euros from the ECB in June, a jump from the 105.6 billion euros in May. Subtracting the amount banks redeposited at the ECB, the total borrowed was 126.3 billion, a quarter of the overall amount lent by the ECB. That figure was up from 85.6 billion euros in May.

Moody’s downgrades Portugal debt rating – MCNBC

Moody’s credit rating agency downgraded Portugal’s bonds on Tuesday, casting fresh doubt on the country’s ability to weather its debt crisis as the economy weakens.Moody’s Investors Service cut Portugal’s government bond ratings to A1 from Aa2. The move deepens the country’s financial woes because foreign lenders will likely demand higher interest returns for the risk of loaning it money.Portugal’s financial ordeal is part of a government debt crisis that has engulfed the eurozone and weighed on the shared currency. The cuts in Portugal’s rating by international agencies in recent months have stoked market concerns that the crisis, which led Greece to the brink of bankruptcy and a bailout, could spread to other financially troubled countries in the eurozone.

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