| Spain's Budget Minister says "Serious Budget Shortfalls in All 17 Autonomous Regions"; Primer Minister Announces $19.3 Billion Package of Tax Hikes; Cockroaches and the Theory of the Unexpected Posted: 30 Dec 2011 11:16 PM PST Spain's prime minister, Mariano Rajoy, has finally admitted three things I have been saying for a long time - Spain's regions were in deep fiscal trouble if not bankrupt
- Spain could not possibly hit its deficit targets for 2012
- It is mathematically impossible for Spain to meet deficit goals without raising taxes, no matter how much he insisted otherwise.
The truth (at least partial truth) is out today with an announcement from Rajoy regarding a major tax hike, and an announcement from the budget minister regarding "serious budget shortfalls in its 17 autonomous regions, which have spent recklessly in the past decade." The budget deficit target is 6%, but the Prime Minister says it will "unexpectedly" be 8% so further austerity measures will be needed. The New York Times reports Spending by Regions Makes Spain's Fiscal Picture Worse Facing a wider then expected budget deficit, Spain's new government announced a $19.3 billion package of tax hikes and spending cuts Friday and admitted the picture was likely even worse than it appeared because of overspending by the country's autonomous regions.
The new budget minister, Cristóbal Montoro, made clear Friday: serious budget shortfalls in its 17 autonomous regions, which have spent recklessly in the past decade.
The Bank of Spain announced this month that regional debt had surged 22 percent, to $176 billion in September from $144 billion the year before. And some experts say that there remain tens of billions of dollars in "hidden" regional debt yet to be discovered.
That "hidden debt," most of it in unpaid bills, is not included in Spain's total national indebtedness of $915 billion. That could easily amount to $25 billion to $40 billion more, experts say. Hidden Debt and Regional Problems
I have talked about hidden debt, hidden losses, hidden deficits, and various regional problems many times. Here is a sampling: Cockroaches and the Theory of the Unexpected Mariano Rajoy says this news is "unexpected". It cannot possibly be. I have been talking about these problems for many months. The admission by Rajoy simply means the problem is so bad that Spain can no longer hide all of the cockroaches. The cockroach theory says that when you see one cockroach there are at least a hundred more. In this case, we see dozens of cockroaches openly scurrying about. I suggest the problems are still far bigger than reported and the economic situation will get much worse. Problems to Get Much Worse Major tax hikes in the midst of a serious recession, with unemployment rate at 22.8% (and rising) makes no economic sense. Yet that is exactly the medicine prescribed by the EMU and agreed to by Rajoy. Spain will find it impossible to meet its deficit target even after these hikes because of the resultant drop in economic activity. Italy, Portugal, and Greece are in the same boat. And with all these slowdowns, precisely who is Germany going to export its products to? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Additional 2012 Predictions: Trade Wars, US Election, Precious Metals, Energy Posted: 30 Dec 2011 03:00 PM PST I inadvertently left off an item regarding trade wars that I intended to mention in Mish 2012 Predictions; 2011 Year in Review with Max Keiser. I also have some commentary on the US election, precious metals, and energy. Trade Wars Expect Global Trade Wars: Look for tit-for-tat trade wars to heat up in 2012 as noted previously in China to Impose Anti-Dumping Duties on GM; "Fair Trade" Idea is Self-Serving Scam; Proposal to Stop "Free Sunlight" Gains Support From Mitt Romney. Should Mitt Romney win the election, expect global trade to collapse in 2013. Trade wars will not be good for equity prices. US Election US Political Roadmap: If President Obama dumps Joe Biden for Hillary Clinton as his vice presidential candidate as Robert Reich suggests in My Political Prediction for 2012: It's Obama-Clinton, Obama will win re-election unless the Republican candidate is specifically Ron Paul. Clearly this is not an endorsement of Obama, it is a prediction. Some mistook my 2008 prediction for Obama as an endorsement. It wasn't. I wrote in Ron Paul in 2008 and will do so again unless he is the nominee. If Ron Paul is the Republican nominee I think Paul would draw enough crossover votes from independents and Democrats who are sick of war and big government to win. If it's Obama-Biden vs. Newt Gingrich or Mitt Romney then it's too close to call. Energy Oil is a wildcard. My prediction is cooler heads prevail. However, the election is 11 months away and that is a lot of time for someone to get carried away. The odds the US initiates an attack on Iran under Ron Paul are virtually zero. Unfortunately the same cannot be said for any of the other major candidates. Should the US or Israel attack Iran (I do not believe the US will), then the price of crude will quickly skyrocket by $50 or more. Such an oil shock would immediately send the entire global economy into a severe recession. Precious Metals Precious Metals Roadmap: What follows is more of an approach than a prediction. Gold remains a much safer play than silver, something I have said for years. Technically silver is flirting with a breakdown of major support at $27. If that low does not hold, a decline to the low-to-mid $20's is likely (something I said earlier this year when silver was near $50). I have no target for gold. The longer the US holds off quantitative easing and the ECB lets the sovereign debt crisis simmer without action, the bigger the potential drop in precious metals. Moreover, silver is likely to take a bigger hit than gold (percentage-wise) in a recession or global slowdown because silver is an industrial commodity and Chinese demand for industrial commodities is poised to plunge. Both gold and silver are more likely to be weaker earlier in the year as opposed to the second half given the Bernanke Fed does not look to launch QE3 any time soon. If the stock market and energy prices plunge in the first half of 2012, Bernanke will be more inclined to launch another QE program and that would be beneficial to precious metals. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Explaining Italian Christmas Season Sales (It's Far Worse Than Previously Reported); How Various Austerity Measures Will Affect Spending in 2012; Emails from Italian Readers; Massive European Recession On the Way Posted: 30 Dec 2011 09:50 AM PST In response to Italians Cut Spending in Worst Christmas in 10 Years; Harsh Times Ahead for All Europe (an article translated from Spanish that had me puzzled about a number of things even though I could tell spending fell dramatically), reader Andrea offers a very nice explanation of just how bad things are in Italy. Hello Mish,
I can help your readers better understand the reported "spending cuts in Italy".
Coldiretti is the farmers lobby and they claim that for Christmas day dinner and lunch they spent 2.3 billion Euros, 18% less than last year and the lowest figure since 2001: Christmas day dinner and lunch (and generally speaking food) is typically a strong tradition that Italians wants to keep as much abundant and tasty as possible even through the worst times, this is why is such an important figure.
The other figure you mention ("The consumer group estimates "as much as 40 percent") is related to something completely different and it is an estimate. Just after the Christmas period (from the first days of January) in Italy and in Europe in general you have a "discounted sales", where retailers sell items at a discounted price to empty their stocks and of the items unsold during the normal season.
Typically this is a consistent part of the sales of the year and people used to rush in the shops since the very first hours of the first days to get the best bargains.
Codacons (one of the biggest consumer associations) estimates that the "discounted sales" this year will be 30%-40% less than last year. Federconsumatori (another consumer association) instead estimates a reduction of 19/20%, which is probably more close to reality (people have probably waited this season to buy something not urgent). If this happens, it will certainly be a huge sign that recession is beating hard.
Regarding total spending during the holiday season, it is quite hard to find a comparison with the last year. The typical comparison reported by media is between the forecast of another consumer association (Federconsumatori) and the actual results: Federconsumatori forecast 4.4 billion and instead the total was 4 billion, so 10% less than forecast.
However, looking in the Federconsumatori Website I found the final result for last year: roughly 5 billion. Therefore, Italy had a 20% decline through Christmas, not the 9% cited in the link you referenced. That 9% drop was based on estimates that had already factored in some of the decline.
This was a massive spending reduction for a season that makes a big part of the revenues of the year. Please note that in Italy employees get the so-called "tredicesima", a thirteenth monthly salary just before the Christmas period, and this is cash that typically helped to lift sales during this period.
By the way, on Federconsumatori website you can find a lot of statistics about spending, prices and so on, unfortunately in Italian.
The most hit seem to be clothes and shoes sectors, which are by the way typical sectors that instead have a lot of sales during the "discount season".
Actually I have been in Italy a few days around Christmas and generally speaking the atmosphere is quite gloom: all the time on the media the main topic is austerity, how much it will affect the spending power, frugal Christmas and so on.
The tax hikes are quite massive : apart the tax on house ownership (which was canceled by Berlusconi government 3 years ago and so is just a comeback), there will be tax increase on revenues applied by each Italian region, there has been increase between 5 and 10% of fuel (petrol, diesel, propane and methane).
Federconsumatori estimates that the sum of the all the austerity budget laws passed this year (Berlusconi + Monti) will reduce the spending power of a typical family of 7.6%.
Best regards,
Andrea Email from an Expatriate Living in Italy Here is a second email from a reader. This one is from Mikkel, an expatriate who now lives in Italy. Hi Mish
I am a expat living in Italy for the last 6 years.
Italy is a wonderful, but strange country. In a politically incorrect and stereotypical analysis of Italy's problems, the North produces, the South lives off the wealth created by the North, and the omnipotent elected assembly (where you do not vote for the candidate, but the party), allows the main politicians like Berlusconi to stay in office nearly forever.
Fortunately, Italy is a country of savers. However, huge fiscal pressure have forced over 60% the Italians to spend less. A liter of gas costs now 1.70 euros (over half is in taxes). That amounts to $8.35/gallon.
Assuming one has a job (official unemployment rate is 8.5%), the average salary is 1200 euro net/month or less, but you still need to pay 21% IVA on all goods, car insurance, gas + taxes, utilities, property and car taxes, etc. Gross salaries are on the order of 2500 euros/month. How much money do people have left to save and invest for the future?
It will be interesting to see what happens.
Thanks
Mikkel Massive European Recession On the Way As I have said numerous times, European countries are in dire need of work rule changes, less government spending, less bureaucracy, and fewer taxes. Unfortunately, bureaucrats have responded with increased taxes. The recession in Europe, which has already started, will be massive. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| French Unemployment Hits 12-Year High (It's Going to Get Much Worse); Sarkozy Outlines Jobs Plan (Mathematically It Can't Work); Olli Rehn to Give Keynote Speech at Eurobond Seminar Posted: 30 Dec 2011 01:07 AM PST The EU Observer reports France to hold jobs summit as unemployment hits 12-year high A sharp rise in France's unemployment figures is putting pressure on President Nicolas Sarkozy to deliver, with over half the French population wanting the candidates for the spring presidential election to focus their energies on maintaining jobs.
Figures released by the labour ministry this week show that the number of those unemployed hit 2.85 million in November, a 12-year high and the seventh consecutive monthly increase.
The numbers have sparked a debate in France about the nature and future of employment with Sarkozy convening a jobs summit on 18 January.
Unemployment as an issue is a number-one priority on French voters' minds. According to a poll in La Croix newspaper, 52 percent of French people want the candidates for the April presidential elections to focus on responses that "maintain employment."
Of the main candidates in the running, socialist contender Francois Hollande is seen as proposing the best solutions to the daily problems of French citizens by 24 percent of those polled. Sarkozy comes in second with 20 percent and far-right politician Marine Le Pen in third place (16%).
While all candidates will focus on combatting unemployment and there are set to be many proposals for economic growth, their hands will be tied by France's commitment to reduce its high budget deficit, as part of an overall plan to contain the eurozone debt crisis. Sarkozy Outlines Jobs Plan Based on German Program (Mathematically It Can't Work) The Wall Street Journal Reports Sarkozy Outlines Jobs Plan Largely inspired by measures Germany relied on to navigate the 2009 economic recession, [Sarkozy's] draft plan calls for companies to retain all staff even if they are faced with a slump in orders, and for workers to accept lower pay. As an incentive and to help pay for the move, the government would kick in for some of the lost wages and social-security contributions, according to officials at the French Labor Ministry and union leaders who were briefed on the proposed pact.
Mr. Sarkozy intends to discuss both the job-saving scheme, and the flexibility idea at a meeting with labor and employer unions on Jan. 18. By then, the government must answer a key question: how to finance measures that officials say could cost more than €1 billion ($1.3 billion) next year.
Five months ahead of presidential elections, Mr. Sarkozy is already fighting on multiple fronts to reduce the budget deficit, preserve the country's triple-A debt rating and find a comprehensive solution to the protracted euro-zone debt crisis.
The unemployment rate—which rose to 9.7% of the active population in the third quarter—is the latest bad news on France's economic dashboard. The country's trade deficit is projected to widen to an all-time high of €75 billion this year, and the national statistics office, Insee, has forecast that the economy will likely contract in the current quarter and the first quarter of next year.
In France, the measure is likely to gather support from trade unions as long as the government commits to compensate pay cuts. "We're on board as long as the government puts some money on the table," said Jean-Claude Mailly, the head of Force Ouvrière, France's third-largest union.
The French government's idea to increase work-time and pay flexibility is likely to meet much more resistance.
"All labor unions will say 'No,' because that would amount to making workers pay for the economic downturn," said Mourad Rabhi, a leader at CGT, France's second-largest union. "And in France there isn't the same climate of mutual confidence between workers and companies, as in Germany." Mathematically It Can't Work The unions will agree to pay cuts as long as there are no pay cuts (government kicks in the rest). Moreover the unions will not agree to increase work-time and pay flexibility because "that would amount to making workers pay for the economic downturn" Heaven forbid. Meanwhile, Sarkozy needs to trim the deficit, not increase it, and his proposal does the opposite. Note that Hollande is widely predicted to beat Sarkozy in an election runoff, and Hollande is running on a platform to make changes to the agreement reached between Sarkozy and German Chancellor Angela Merkel. Expect European Unemployment to Get Much Worse Europe is already in a nasty recession. Austerity measures coupled with tax hikes in numerous countries but especially Italy, France, Spain, Portugal, and Greece will make matters much worse. "United States of Europe" Author Hosts Eurobonds Seminar The galling arrogance of Eurocrats is rather stunning. While reading the EU Observer article at the top, this Ad for a Eurobonds Seminar on January 10, 2011 popped up.  Olli Rehn is Vice President of the European Commission. Guy Verhofstadt MEP is the Leader of the Alliance of Liberals and Democrats for Europe and author of the book United States of Europe (2006), the New Age of Empires (2008) and How Europe can Save the World (2009). Tireless, Dangerous Demagogues Rehn and Verhofstadt are tireless, socialist fools as well as dangerous demagogues dedicated to the destruction of sovereign rights of every nation in the EMU. They ought to scare the bejeebies out of any sane person who is not in favor of a European Nanny-Zone. Their brainwashing event, marketed as a seminar on eurobonds is already filled up. The primary thing stopping these socialists and their nanny-zone ideal is the German supreme court. This past Wednesday, German Constitutional Court Judge Udo Di Fabio said in a Spiegel interview " It's a Mistake To Pursue a United States of Europe". Please note that Di Fabio sees Euro-bonds as illegal. However, the judge proved his naiveté with his statement "no politician really intends to transfer their power of disposition over the substance of the national budget at an EU level". On the contrary, the European Parliament is loaded with nanny-zone proponents who are conducting seminars on how to do just that. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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