On the brink

Today Spanish banks are to be 'bailed out.' The EU got its marching orders from Obama (with additional squeaks of concern - courtesy of Cameron.)

Leaving aside the complicated arrangements that will be needed to get round the complete absence of political leadership in Europe, or even the delays and double dealings that might be necessary to get any real action, what is the scale of the problem?

First the bank debts. There have been various attempts to define the extent of the rotten holdings in Spain's banks. There is a current 'independent' Spanish audit underway. For what it is worth, guided by an International Monetary Fund report published late on Friday, Spain's largest banks have enough capital to withstand further deterioration, but several banks would need to increase capital buffers by at least €40bn, the report adding it could be more with restructuring costs and reclassification of loans. Fitch, which cut Spain’s credit rating by three notches on Thursday, estimates the country's banks will need up to €100bn, while JP Morgan said the full requirement could be as much as €350bn.

Second; the government's position. Spain has been religiously carrying out EU austerity policy - including adding it to their constitution. Yet the Institute of International International Finance (the IIF represents over 450 of the world's largest private financial institutions and played a key role in negotiations to restructure the Greek debt) states that Spain is considered to be one of the most economically unstable eurozone countries. Spain's state debt may grow to 79.8 percent of gross domestic product in 2012, an 11 percentage point increase compared with last year. The Bank of Spain confirmed in late April that a technical recession had started, while Standard & Poor's rating agency downgraded the country's long-term sovereign rating to 'BBB+'. Spain's budget deficit amounted to 8.5 percent of GDP in 2011. The European Commission said in late February that it would be difficult for the country to reduce its budget deficit to 4.4 percent of GDP in 2012 and to three percent of GDP in 2013, projections that its whole EU austerity 'plan' is based on. In short, Spain's government is currently growing itself a new debt mountain to go along side the one held by its banks.

What assets to deal with the crisis does Spain have? There are two. Capital and the Spanish people.

First there is the €1.5 Trillion that are purported to be held in Spanish banks. ('Today' R4, June 7.) Unfortunately Bank of Spain data showed a net €66.2 billion was sent abroad in March, 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. (Reuters 6 June.) No figures are yet available for April and May yet but the trend of bank withdrawals is accelerating. On the 17 May the FT reported that customers had withdrawn €1bn from the already nationalised Bankia in the past week.

Neither capital held in private hands nor that held by the current government (see above) can be counted as an asset - as a real, available resource to use to take hold of and deal with the coming crisis.

Events in Spain however begin to show the assets that the people - building up the new anti-austerity movement - can bring to the table. Since the general strike involving over half a million (CNBC 29 March) the occupation of town squares by tens of thousands of youth against legal rulings, (25000 alone in Madrid's Puerta del Sol at the end of May); anti-bank protests in Barcelona, (June 6) and Madrid (June 8) are all simply the latest of a new outpouring of action.

Demonstrators gathered in more than 80 cities across Spain (May 14), chanting the slogan that has become a mantra at protests over the past year: "They say it's democracy but it's not."

This morning roads and railways are blocked in Spain as a miner's protest against cuts continues. (euronews 2pm 9 June.) Yahoo News reports that a wave of occupations of empty property has started. There are about one million vacant homes left over from the property crash in Spain, where the number of home evictions last year amounted to more than 58,000.

Here lies the seeds of a future. Here lies the strength, courage and resources to deal with the crisis.