Spain is the next country in the firing line of the eurozone's debt crisis, with spendthrift regions and shaky banks threatening to blow a hole in state finances and pushing funding costs towards levels that signal the need for a bailout.
The European Commission gave new help on Wednesday, offering direct aid from a eurozone rescue fund to recapitalize Spanish banks and more time for Madrid to reduce its budget deficit.
That helped lower the risk premium investors demand to hold Spanish 10-year debt rather than the German benchmark on Thursday, but it remained close to the euro-era record, at 520 basis points.
Bank of Spain data showed a net 66.2 billion euros ($82.0 billion) was sent abroad last month, the most since records began in 1990. The figure compares to a 5.4 billion net entry of funds during the same month one year ago.
Spaniards are worried about the health of their banks, hit by their exposure to a 2008 property crash, and have been sending money to deposit accounts in stronger economies of northern Europe.
The capital flight data predates the nationalization of Spain's fourth biggest lender Bankia in May when it became clear the bank could not handle losses from bad real estate investments, compounded by a recession.
Spain's centre-right government has contracted independent auditors to assess the health of its financial system in an effort to restore faith in its banks.
Spain must lay out its restructuring plans for Bankia to the European Commission (EC), a spokesman for the EU executive arm said on Thursday. He added that a domestic solution to the country's bank crisis would be better than a European rescue.
The government said on Wednesday it would finance a 23.5 billion euro rescue of the bank through the bank fund, FROB but senior debt bankers said that the syndicated bond market is currently closed for Spanish agencies.
REMOVING UNCERTAINTIES
The prospect that Spain might not be able to handle losses at its banks has pummeled shares and the euro, although both regained some stability on Thursday.
"What we need first of all is for the Spanish government to tell us its restructuring plans for Bankia, what options it is considering," said European Commission spokesman Amadeu Altafaj in a radio interview.
"From there, we will study the plans and see whether they comply with requirements for public aid."
Spain should carry out the refinancing of its banking sector, laid low by a decade of unsustainable lending during a property boom, by market mechanisms or government funds, rather than a European rescue which would have negative connotations, Altafaj said.
"The sooner uncertainties are removed the better," he added.
The government also hopes to clear doubts on Friday about how it plans to ease financing problems among its 17 autonomous regions.
Treasury ministry sources said a mechanism to back the regions' debt would be agreed at the weekly's cabinet meeting and figures showing they were on track to meet their spending cuts targets would be released.
Fitch Ratings downgraded eight regions on Thursday, warning that a failure from the government to adopt new measures would result in further ratings cuts.
Spain's Deputy Prime Minister Soraya Saenz de Santamaria is due to meet U.S. Treasury Secretary Timothy Geithner and International Monetary Fund Director General Christine Lagarde in Washington on Thursday.
The deputy PM will outline Spain's measures to tackle its crisis during the meetings, which were convened before Spain's situation reached boiling point, a government spokesman said.
© 2012 Thomson/Reuters. All rights reserved.
Money has changed – that’s the issue - New Statesman
Peter Selby responds to Nelson Jones's article Money and Morality.
When the St Paul’s Institute, working with JustShare, Penguin Books and the LSE, brought nearly 2000 people into St Paul’s for a public debate on the theme of Michael Sandel’s book, What Money Can’t Buy: the Moral Limits to Markets (see Nelson Jones, NS 25 May) it was because we knew the theme touched a nerve, not because we have an answer to peddle. The Institute has been engaged for some years, as an agency of the Cathedral, in seeking to get into debate with the financial institutions which are its ‘parish’; as such we could hardly think Sandel’s book unimportant, and we were delighted so many others thought the same.
That’s not the same as signing up to his thesis about the moral corrosion brought about by the intrusion of the market into all sorts of spheres to which it is not appropriate. Certainly we are signed up to the desire to get people thinking hard about which are the things that should be for sale and which should not be and, as Rowan Williams says in his review of What Money Can’t Buy, to do so on the basis of rational reflection rather than relying in feelings of revulsion when we see certain things getting a price.
Nelson Jones in his NS piece wonders whether things have deteriorated from some golden age when money didn’t play the part it now does, and points to many areas where things were much more monetised in the past than they are now. Tellingly, if slightly optimistically, he says we no longer sell people, and however bad the euro crisis gets we still won’t be doing that. There are examples he cites in the ancient world that are at least as unpleasant to think about as some of the examples Sandel gives of the intrusion of market thinking.
In my comments in the debate I voiced my own reservations about Sandel’s thinking, so much of which seems to me to address symptoms without digging deeper into causes. When he gives the example of prisoners being able to buy a cell upgrade, and when Nelson Jones points out that that has historical precedent, the deeper issue is not being faced by either of them: the selling off of incarceration as a business is common policy in the USA as it is increasingly in Britain. In the process of creating that market a financial interest is being created in locking people up. That can’t be unconnected with the fact that we in Britain lock up more people than other European countries and that a quarter of the rising number of prisoners in the world – and a third of all incarcerated women in the world, whose number has increased by a sixth in five years – are in the USA.
The figures that became a matter of public scandal during the Jubilee 2000 campaign for the relief of unrepayable third world debt showed all too clearly that the escalating power fo financial debt was depriving children worldwide of education, healthcare and life itself. The situation is infinitely worse than either Sandel or Jones portrays: the issue is not the buying and selling of things that should, or should not, be free, or whether people value things they pay for more than things they receive for nothing; in the end it is not about getting people to think more clearly than they do about whether markets should have moral limits though all these questions are important. What really matters is that in everything from the depletion of the planet’s resources to the requirement on Greek citizens to sell their democratic birthright to have their debts rescheduled money is deciding matters of life and death, and doing so more and more.
That’s why as a Christian and a theologian I am convinced money has acquired all the characteristics of an idol, aggrandising its power and claiming more and more of people’s lives. And that’s why, because of faith’s commitment to raise fundamental questions about anything that has the potential to be an idol, the St Paul’s Institute will go on engaging that debate at an ever more fundamental level. When it recently commissioned a report on the attitudes of those working in the financial sector (see Value and Values) we learned that most did not think the City should listen more to the Church’s guidance. But we now know, since the Sandel debate came to St Paul’s, that many people do want to know whether pressing economic questions have something to say about the meaning of life and whether those who profess faith are prepared to get involved in relating that faith to those questions.
Because, make no mistake, money did not acquire this power by accident. The last four decades, roughly since the massive oil price rises of the early 1970s, have seen vast increases in the amount of money in circulation, and technological advance has multiplied its speed of circulation. In the absence of means of regulating that the dominant policy has been one of deregulation, allowing the power of money to grow with its quantity. The results are not just the life and death issues I have described, but a situation in which all of us, rich or poor, are compelled to worry more and more about money and think more and more about it.
The issues of monetary reform, dismissed even by the independent commission on banking and widely ignored, are ones we need to press: just as ‘home ownership’ is a euphemism for housing debt, so ‘fractional reserve’ is now a synonym for debt multiplication: is one of the questions we need to ask about the post-2008 crisis whether the system on which we have relied for money creation for nearly a century fraught with inherent instability? I ask the question not because the Institute has a recipe or a policy to commend, but because it is our passion as a community of faith to ensure that these questions are honestly faced. The Sandel debate, and the Jones response are just a start.
Peter Selby is one of the interim directors of the St Paul’s Institute, and author of Grace and Mortgage: the Language of Faith and the Debt of the World. He was until retirement Bishop of Worcester, and Bishop to HM Prisons.
US stocks waver; euro dives on Greece turmoil - Yahoo Finance
Stronger news about the U.S. economy stilled the ripples from Europe's latest political impasse Tuesday, pushing U.S. stocks between modest gains and losses.
The euro and European stocks plunged as trading in New York began after efforts to form a government in Greece collapsed. Newly-elected political leaders there disagree about whether to accept more international bailouts and continue with painful spending cuts.
In the U.S., stocks staged a mid-morning rally after word that confidence among U.S. builders rose to a five-year high in May. The index has risen for seven of the past eight months. Homebuilders rallied. Hovnanian Enterprises surged 10 percent, Lennar Corp. 4 percent and KB Home 3 percent.
Earlier, a survey by the New York Federal Reserve found that manufacturing activity in the New York region rebounded this month far more strongly than economists had expected.
The market's early rise deflated briefly, then stocks climbed at midday to new daily highs. By the afternoon, the indexes again were flat for the day.
The Dow Jones industrial average fell 12 points to 12,683 as of 3 p.m. EDT. Losses by most of its components were offset by gains for JPMorgan Chase and Bank of America, shaking off recent losses related to the surprise $2 billion trading loss that JPMorgan announced last week.
The Standard & Poor's 500 index fell two to 1,336. The Nasdaq composite index rose seven to 2,909.
Stocks are having their worst month in the past eight. For the month, the Dow is down 518 points — about 4 percent — after hitting a four-year high on May 1. The average is on track to post its first monthly loss since September, when it fell 6 percent.
If the Dow closes higher, it will be only its second up day since the peak reached on May 1.
The euro fell as low as $1.2730, a four-month low against the dollar, after Greek socialist leader Evangelos Venizelos declared that attempts to form a governing coalition there had failed and new elections will be held next month. If voters elect parties opposed to the terms of the country's financial rescue, Greece could be expelled from the euro, shocking global markets.
Stock indexes in France, Britain and Germany gave up earlier gains after Venizelos' remarks and closed sharply lower.
Aside from fears about Europe, stocks are suffering because a string of weaker economic data in recent weeks has dampened hopes for corporate performance in the current quarter ending June 30, said John Butters, senior earnings analyst at FactSet, a financial data provider.
For the first month of the quarter, as earnings came in strong and stocks rose, analysts' expectations for second-quarter earnings growth held steady at 6 percent, Butters said. In the two weeks since then, as the U.S. economy appeared to soften and Europe's problems reemerged, analysts cut their estimates for S&P 500 earnings growth to 5 percent, he said.
Analysts expect earnings to decline this quarter for half of the 10 industry groups in the S&P 500, Butters said. He said many expect a strong rebound in the fourth quarter as demand returns in emerging markets such as China and India.
Among other stocks making big moves:
— Home Depot slumped 2 percent, the most of the 30 companies in the Dow, after the world's biggest home-improvement company forecast revenue that was below what Wall Street analysts were expecting.
— TJX Cos., which owns the T.J. Maxx, Marshalls and HomeGoods store chains, shot up 7 percent, the most in the S&P 500 index. The discount retailer reported a 58 percent surge in first-quarter income and raised its full-year profit forecast.
— Avon Products Inc. fell 11 percent, the most in the S&P 500 index, after Coty Inc. canceled its unsolicited, $10.7 billion bid for the cosmetics retailer.
— Groupon leapt 6 percent after the online daily discount site reported first-quarter revenue that exceeded analysts' expectations.
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Daniel Wagner can be reached at www.twitter.com/wagnerreports.
Money Matters: Financial mistakes to avoid in a divorce settlement - WMUR.com
In a divorce settlement, it is common for both parties to focus on immediate financial concerns. Yet it is the long-term financial consequences of divorce that frequently are more devastating. Here are some of the most common concerns and how to avoid them.
Taking the house. The spouse who will have custody of the children typically wants to keep the family home. While this may be desirable emotionally, it can be financially problematic.
A home is an illiquid asset that costs money to pay for and maintain. The parent with the children may not have the income resources to take care of both the home and the children, particularly if they give up other financial resources in return for the house. Consequently, it may be better financially to sell the home, purchase a more suitable residence, and split the balance.
Assuming equal is equal. The family home is a good example of the “dividing things down the middle.” Frequently, one person takes the house and the other keeps the pension and retirement account. Say both are valued at $400,000. The home is a cost-burden, while the retirement account is a liquid asset that can continue to grow tax deferred, probably at a faster growth rate than the home.
Not examining earning potential. Often one spouse has minimized a career in order to raise children. The settlement needs to take this into account, perhaps by providing extra money to the homemaking spouse to pay for additional career training or education.
Not thinking about taxes. Say it is proposed that one spouse keeps a $150,000 individual retirement accounts and the other keeps a $150,000 taxable investment account. Sounds fair. But it is not. The owners of the IRA will have to pay taxes on the money when it’s withdrawn at higher ordinary income rates while the other pays at capital gains tax rates on the investment gains as the assets are sold.
Not following through with your attorney on the QDRO. A spouse who will be receiving part of his or her spouse’s qualified retirement accounts will need a court order called a “qualified domestic relations order.” To avoid mistakes here make certain the attorney is aware of all retirement accounts and examine each plan for their rules regarding QDROs. Have the QDRO pre-approved by the plan before the settlement is final and start early in the approval process. Consider any available survivor benefits in the process.
Not insuring a divorced spouse. If you will be relying on your ex-spouse for any financial benefits take out a life insurance policy on your spouse to ensure the money will be there when the time comes. You should own the policy, so you know the premiums are paid. And buy the policy before the settlement becomes final so you know the spouse is insurable.
Finally, include your accountant and financial planner in the discussions as well as your attorney. That way long range ramifications can be thoroughly thought through and discussed before the divorce is final.
Stocks close volatile session lower - msnbc.com
Stocks closed Thursday's volatile session lower, as investors focused on Europe's mounting credit problems.
Spain is in the center of the latest developments as markets judged the Madrid government would sooner or later have to ask for outside help to bail out its banks. A report, later denied, of possible plans to help Spain deal with its banking crisis helped Wall Street cut its losses.
"What's missing is a mechanism where the entire continent is exposed to the (debt of) individual countries," said Jim Russell, chief equity strategist for U.S. Bank Wealth Management in Cincinnati. "This type of solution is becoming more popular and more credible."
Equities fell on reports that showed private payroll growth accelerated only slightly last month and claims for jobless benefits rose last week, suggesting the labor market recovery was stalling.
"Europe is the main issue, no question about it, but you have a supporting cast from the U.S. data," said Paul Zemsky, head of asset allocation at ING Investment Management in New York.
The labor data came a day ahead of the U.S. government's monthly payrolls report. A disappointing number in Friday's report could bring back talk of further stimulus from the Federal Reserve.
In other data, the Commerce Department said first-quarter economic growth in the United States was slightly slower than initially thought and the Institute for Supply Management-Chicago business barometer fell in April to its lowest level since September 2009.
Facebook Inc shares hit a fresh low of $26.83 before bouncing back to close up 5 percent. The social networking company has fallen in six of its eight trading sessions.
Reuters contributed to this report.
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