New escalation "in the Euribor?

The expected interest rate hike by the ECB for the second half of 2010, motivated by the fact that yield differentials between the public debt issues between the various first world countries have increased in recent months (as leading to more expensive and more difficult to obtain external financing) and the risk of a possible scenario of deflation, it would have an immediate impact on mortgages and bank loans, thus choking broad economic strata and a dramatic increase in delinquencies and foreclosures of homes and commercial premises.

Euribor Climb:

The ECB’s rate hike will cause the Euribor can reach 3% in the horizon of 2011, which coupled with the expected tightening of the conditions of future bank loans, (introduction of a charge for future mortgages 1.5 -2 points over Euribor), will lead to increases in delinquency rates close to 9% for 2011 and the severe housing market stagnation.

The mortgage lending has fallen 40% in 2009 and sales of previously owned homes 45% expected a fall of 7.5% construction and 65% in housing starts for 2010, which cause the appearance of a stock of more than one million homes will not find buyer until 2012, as banks seek tenders and the creation of asset management companies to dispose of property seized floors that accumulate in portfolios (considered "illiquid assets"), which will lead drastic drops in property prices that hover around 60% compared to 2007 (prices artificially revalued due to the speculation of the last decade.)

Worsening financial system instability:

Falling interest rates to 1% ECB has eased the liquidity problems of financial institutions, but above the ECB rate rise will accelerate as banks continue to be capitalized and need more public capital injections due to the existence of oversupply of emissions that have traditionally used to finance the Spanish sector, its price must be refloated ((mortgage bonds).

This, together with the replacement of the traditional economic theory of the State budget balance deficit by the endemic (mimicry practice adopted by municipal councils and autonomous regions) contribute to increased risk premiums and credit is still not flowing smoothly around real interest rates, which together with the subsequent downgrade of the debt of the state could increase the difficulty in obtaining external funding.

Finally, the policies of rationalization and optimization services to accelerate the predictable results mergers of savings banks most exposed to real estate assets and closing unprofitable branches countless drawn up a scenario of five large boxes (the operation that would have blessings of the Bank of Spain), but not longer-term disposable bank mergers

Disappearance of "Papa," State "

The dramatic decline in state revenues and the brutal increase in unemployment benefits, incurred by the end of Social Security surpluses by 2011, which could cause a dramatic reduction in welfare benefits would affect the duration and amount of unemployment benefits, pensions and survivors’ pension and free and universal public health and the subsequent contraction of investment in basic infrastructure that directly affect the construction of new highways, reservoirs, Public Schools, Prisons, Health Centres and AVE future lines, not being ruled out the use of the "box of pension to meet the needs of the state in the horizon of 2012.

Labor Market Reform

At the request of the CEOE and the opposition of unions, the Government will accede to the labor market reform, involving the progressive introduction of free dismissal, the establishment of working at least 45 hours per week and delayed retirement 65 coupled with the loss of purchasing power of workers because of low wage increases, freezing or dramatic reduction of the data and the subsequent generalization of precarious wage work and interim seiscieneuristas lifetime.

This will lead to the radicalization of the unions once and submissive gentrified class, the breakdown of social dialogue with employers, frequent outbreaks of labor unrest and media appearance of anti-globalization groups using urban guerrilla tactics to bring in check forces security.

Stagnation of economic crisis

The aforementioned rise in interest rates coupled with the surge in oil prices could lead to episodes of stagflation and produce a new stock market crash that would have the beneficial effect of forcing companies to redefine strategies, adjusting structures, restore its finances and restore its credibility in the market (as happened in the stock market crisis of 2000-2002) and as collateral damage ruin of millions of small investors are still dazzled by the lights of the stratosphere, the financial starvation of the firms and the consequent ripple effect on the statement Bankruptcy and the brutal restructuring of key sectors of the economy (with increases in unemployment rates to levels not seen since the postwar Spanish) and the stagnation of the economic crisis until 2012.

Risk of exclusion of the Eurozone:

We may also assist in the horizon of 2014 at the beginning of the demise of the current euro area and its replacement by a constellation of satellite countries within the orbit of the Franco-Germanic, due to the demands of the ECB to comply with the limit set for the public deficit of 3% for 2012, (a very complex undertaking for countries like Portugal, Italy, Greece, Spain and Ireland with rates well above the average of the eurozone (4%) and comfortably exceeding the original bar set by the ECB, (3%)) and therefore at risk of exclusion from the eurozone on the horizon of 2014, were significant in the case of Spain’s return to economic scenarios and forgotten, with the forced return of the peseta subsequent depreciation and return to the same income levels typical of the 90s.

LOPEZ-GORRAIZ GERMAN ECONOMIC ANALYST