Spain: What Are Its Funding Needs?

By Matt Phillips

As we’ve mentioned before, Spain is the 600-pound gorilla in the room as we try to weather the the most recent spate of euro worries.

Part of the reason has to do with the size of the funding needs of the euro zone’s fourth largest economy. By “funding needs” we essentially mean the amount of cash the country needs to borrow or rollover to keep the lights on, keep paying government salaries and keep the government functioning.

For instance, Greece’s IMF/EU bailout came about back in May in part because Greece was facing an immediate need to ?go to the bond markets to borrow the 8.5 billion euros. But more broadly, Goldman Sachs analysts at the time pegged Greece’s funding needs at about 150 billion euros over three years.

Analysts at Brockhouse Cooper say in a note out Nov. 23 that the amount of borrowing Spain would need to do to pay for deficits and roll over loans it received in the past is much bigger. :

Spain’s funding needs are far larger than those of Ireland or Greece. Over the next three years, Spain will need approximately EUR 350 billion to roll over existing debt and fund deficits. This figure would probably exceed amounts available through the EFSF after loans are disbursed to Ireland and after subtracting guarantees from the weaker Eurozone members (including Spain itself, as it would not make sense for the country to guarantee its own debt through the EFSF).

The European Financial Stability Facility [EFSF] is the 440 billion euro bailout fund set up this summer by euro-zone governments to try to deal with the more indebted members of the monetary union. You can see, that a 350 billion euro bailout would be a fairly healthy chunk of that. That’s why the sight of those Spanish bond yields blowing out makes the good folks in Brussels rather nervous. As the analysts at Brockhouse Cooper put it: “Bottom line: If Spain finds itself in need of rescue funds, the EFSF will likely not be in a position to provide enough support and some recourse to IMF funds will probably be necessary. As a result, we do not believe that the European debt crisis is over yet.”

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Irish Funding, Insurance Costs Hit Record

By Emese Bartha

The cost of insuring Irish debt against default hit a fresh record Friday with investors fearing that Ireland’s draconian budget cuts will slow economic growth and further weaken public finances.

Spreads on Irish five-year sovereign credit default swaps topped 6.10 percentage points Friday, according to data provider Markit, after having briefly touched 600 basis points Thursday. This means that investors will have to pay €610,000 annually to ensure €10 million Irish debt against default. Some market watchers note that CDS trading starts to dry up at these levels as investors worry about being caught on the wrong side of the trade.

CDS are tradable, over-the-counter derivatives that function like an insurance contract for defaulting on debt. If a borrower defaults, the protection buyer is paid compensation by the protection seller. The Irish 10-year yield spread over German bunds, which show how large a premium investors demand to hold Irish bonds versus more-stable German debt, also hit a record of 5.31 percentage points Friday.

“We doubt that next year’s €6 billion fiscal squeeze will be enough to ensure that the Irish government’s 2011 budget deficit goal will be met,” Ben May, European economist at Capital Economics, said in a note.
“This, combined with rising political uncertainty and surging bond yields, implies that Ireland may struggle to solve its fiscal problems unaided,” he said. But he noted that Ireland’s decision to front-load its austerity measures is “clearly encouraging.”

The Irish government said late last month that it would need to make budget cuts of €15 billion over the next four years in order to reduce the country’s budget deficit to 3% of gross domestic product by 2014, as previously agreed with the EU.

Ireland’s budget deficit is expected to reach a euro-area record of 32% of gross domestic product by the end of 2010, largely because of costs related to recapitalizing the banking sector.

The government expects its budget deficit to be between 9.25% and 9.5% of GDP in 2011. It also forecasts little economic growth this year but expansion by 1.75% in 2011, 3.25% in 2012, 3% in 2013 and 2.75% in 2014. Ireland’s government had previously forecast growth of 3.3% next year and 4.5% in 2012.

JP Morgan economist David Mackie said that gauging the impact of fiscal consolidation on economic growth isn’t easy but the growth projections in the new plans “still look ambitious.”

“The cumulative fiscal adjustment may still need to be greater, either if the equilibrium primary position is more positive than the government is currently assuming or if growth fails short of the new projections,” he said.

Details of Ireland’s economic and budgetary outlook from 2011 through 2014 will be given Dec. 7.

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Surge Republican funding provides the crucial advantage

Los Angeles Times:

Powered by a wave of money outside, the Republicans have begun wants a democratic Assembly seats once security and GOP reach - a reader who threatens to reshape the electoral map and raises the spectre of a rout historic two weeks mid-term elections.

Groups such as American crossroads and American action network said last week that they were reduced more than 50 millions of dollars in House races to save applicants Republican, 50 million already passed by House arm of the group image campaign.

Read the story: Los Angeles Times

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