We’re still in this. If you took all the losses in the system and deducted them from the equity of banks worldwide, you would end up with a dramatically negative figure. What we are witnessing is the global nationalisation of the financial sector. The political implications are extraordinary. Take the European Union. Spain, Italy and Ireland are all in a right mess. According to opinion polls, the German public would rather leave the European Union than have to cover these countries’ debts. Sovereign credit is set to come under attack. And the multi-trillion-dollar elephant in the room is: will the United States fulfil its obligations?
In the following video, we can see a short BBC report from almost two years ago (with Spanish subtitles). Unfortunately, its worst fears have come true:
In a recent study carried out by Variant Perception, the reflections on the situation in Spain are far harsher. We shall endeavour to translate them as faithfully as possible:
«As we have said on other occasions, Spain is heading for a long and painful period of deflation, which will become evident through spectacularly high levels of unemployment, the collapse of the property market and widespread bank insolvency. Consider this: the value of the bulk of loans to property developers rose from 33,500 million to 318,000 million between 2000 and 2008. That is an 850% increase over eight years. If we also add the debts of the construction sector itself, the total value of the debt rises to 470,000 million, almost 50% of Spain’s GDP. And many of those loans will ultimately prove to be irrecoverable.
Spanish banks are facing a truly grim outlook. Unemployment has now exceeded 17%. That is to say, there are 4 million unemployed people and 1 million families in which every member is out of work. Spain and Ireland have created the two largest property bubbles in the world. Spain, for example, has the same number of unsold homes as the US, even though the American property market is six times larger than Spain’s.
Why aren’t Spanish banks insolvent yet? Well, because they are not reflecting the true market value of their property on their balance sheets. We often wonder why the property and industrial collapse in Spain has not claimed more victims. The answer is simple, according to an article published in *Expansión* (the Spanish equivalent of the *Financial Times*): Banks and building societies carry out one in every two property valuations.
»We haven’t even begun to see the worst in Spain yet.'
Clearly, the fact that half of the valuations are carried out by companies in which the banks hold a stake – and which are, in turn, their main clients – means that these valuations lose all independence. If we add to this the banks’ desperate need to keep their balance sheets and credibility afloat, the combination is explosive, and turns the previous chart into a highly dangerous fallacy. The reality is that it is in the interests of no official Spanish body to shine a spotlight on the solvency of the Spanish banking sector (further evidence of the difference between global leaders and local politicians).
Given that we can avoid it, we do not think it is a good idea for our money to form part of their balance sheets, neither to safeguard our assets nor to avoid a possible devaluation that many voices of a strong Europe (A) they demand. From abroad, the situation appears much clearer and more realistic. Who would have thought that we would once again have to look to the foreign media for the truth, just as in the days of the dictatorship. In Economic Euroscepticism We could have said it more loudly. And we could have said it much more clearly before, too, but we didn’t think it was responsible to do so publicly whilst it was nothing more than a highly unlikely hypothesis. But perhaps it is now pointless to ignore a reality with an outcome that is difficult to avoid. Even the very Expansion, when discussing the continuity of the Union’s membership, he makes the following politically incorrect statement:
«…In this regard, Schroders maintains that Spain and Italy are the favourites to be the first to break away, although Ireland, Portugal and Greece have recently joined this group…»
The fact is, whether we like it or not, we’ve got a nasty one the elephant in the room of a Europe that is more divided than ever.
Spain strikes fear into the hearts of our neighbours who are better equipped to weather this crisis. And this is only to be expected, given that in the recent past they have made fewer mistakes and committed fewer abuses than countries such as Spain, Ireland, Greece, Portugal or even Berlusconi’s Italy itself. Economically speaking (since, politically and emotionally, we are just as European as the other southern countries to date), we Spaniards have been playing at being ‘first-class Europeans’ (A) over the last decade. But we have lost (B).
This crisis is like taking part in a relay race where we Europeans are all on the same team. Some are wearing the most advanced trainers and they battle athletically against a relentless stopwatch (the crisis). However, some of us on the relay team are feeling sluggish and hungover. And when the better-prepared European athletes rightly criticise us Spanish runners for our poor form and lack of training, we reply: «Don’t step on me, I’m carrying flip-flops«, and we sang this song to them:
What’s going to happen to this team in the future if it doesn’t want to make a fool of itself and wants to keep fighting for a podium finish (A)? It’s as plain as day…