Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Thursday, June 14, 2012

Mariano Rajoy, Spanish Prime Minister, Calls For Further European Integration In Wake Of Bailout

MADRID — Spain faced mounting pressure Wednesday to bolster confidence in its financial system just days after accepting a (EURO)100 billion ($125 billion) plan to rescue its banks.

Prime Minister Mariano Rajoy called for greater European fiscal and banking integration to save his country and the 17-country euro currency alliance.

Madrid's key borrowing rate closed at a euro-era high, indicating deep investor concern about the government's financial stability.

And late Wednesday, Moody's Investor Service slashed the government's credit rating by three notches to just above "junk" status. Moody's cited the level of debt Spain will be absorbing, the weakness of its economy and the government's limited ability to raise money.

Moody's said it put Spain on review for another possible downgrade in coming months.

Rajoy went on the offensive in parliament earlier Wednesday. He lambasted the Socialist opposition for not addressing the country's banking debt crisis when it was in power from 2004 until November, and called for their support in "a project for European fiscal and banking integration."

He said Europe now faced a key issue, "which is the subject of liquidity, debt sustainability, and that battle has to be waged in Europe," Rajoy said in the lower chamber. "You and I agree on that, and I am waging it," he said looking straight at leader of the opposition, Alfredo Perez Rubalcaba.

Market pressure on Spain continued to grow, with the 10-year-bond yield – an indication of investor confidence in a state's ability to pay off its debt – ending the day at 6.71 percent, according to FactSet, the highest closing price since the country adopted the euro currency. Madrid's stock index finished the day up 1.4 percent.

Rajoy told Spain's gathered lawmakers that he had sent a letter to Jose Manuel Barroso, president of the EU Commission, and Herman Van Rompuy, president of the European Council, calling for new measures that might help weaker states like Spain. Those could include sharing debt burdens across countries or guaranteeing bank deposits across the eurozone.

He said he would be present at a meeting of European leaders in Rome on June 22 "where I will back fiscal and banking integration."

Rajoy's sentiments were mirrored in the European Parliament in Strasbourg, France, where Barroso said the euro block needed a plan for the long term, including coordinated budgets and banking regulation.

Spain last weekend asked for a loan lifeline from the 17 countries that use the euro to shore up Spanish banks. Because Spain's borrowing rates in financial markets are high, the country can't afford to raise the rescue money itself.

There are fears, however, that because the government will be responsible for repaying the banks' rescue loans, the deal will add to public debt, hurting confidence in the country's ability to finance itself and forcing it into the kind of bailout asked for by Greece, Ireland and Portugal. Spain's borrowing rates have gone up steadily since the weekend bailout announcement.

Analysts say the country is finding fewer and fewer international buyers for its bonds, leaving Spanish banks to buy an increasingly large amount of the government's debt. As the banks continue to struggle with losses on real estate investments, the government is finding it harder to sell its bonds.

Spain does not have a particularly high debt to GDP ratio; at 68.5 percent, it's far lower than even Germany's, which is 81.2 percent. But Spain's economy is in a deep recession and has poor growth prospects, making it very difficult for it to reduce debt.

Any trend upward is worrisome because the country also has a high deficit; at 8.9 percent of GDP, it's among the highest in the eurozone.

Rajoy didn't offer details about how the bank bailout plan will work except to say that banks will pay back the money they receive, but Spain's El Mundo newspaper reported that the loans to the government will last 15 years at 3 percent with repayments to begin no later than 2017. El Mundo cited unnamed sources familiar with the negotiations, and Spain's Economy Ministry declined comment on the report.

Rajoy released a letter Wednesday sent by him to top eurozone leaders just before Spain asked for the bailout last weekend. In it he pleads with EU leaders to push the European Central Bank to restart a program of Spanish bond purchases that helped ease the country's borrowing rate last fall.

The letter, sent June 6 to Van Rompuy and Barroso, said Spanish companies and households desperately "need access to liquidity. This is impossible if doubts persist about the sustainability of the debt of sovereign states."

It's unclear what impact if any the letter would have, because the ECB is legally independent and forbidden by treaty to take instructions from politicians. The ECB's suspended program of bond purchases was limited in size and duration and aimed at ensuring more uniform interest rates in the eurozone – not at supporting Spain's ability to borrow.

Also unclear is where the eurozone bailout loans for Spain's banks will come from. If the money comes from the existing eurozone rescue fund, the European Financial Stability Facility, its repayments will have the same priority as all the other private bond investors.

However, if the funds come from the new bailout facility, the European Stability Mechanism, its bond repayments are supposed to be given a higher priority than everyone else's – which could mean that other debt would be less likely to be paid off. That could make bondholders less willing to buy Spain's debt or demand a higher interest rate to compensate for the added risk of losses.

Spain will wait for the results of two independent audits of the country's banking industry due by June 21 before saying how much of the (EURO)100 billion it will tap. The bailout loans will be paid into the Spanish government's Fund for Orderly Bank Restructuring (FROB), which would then use the money to strengthen the country's teetering banks.

In a report released late last week, the International Monetary Fund estimated Spain needs around (EURO)40 billion to prop up banks hurting from an unprecedented real estate boom that went bust.

Credit rating agency Fitch estimated Wednesday that the banks would need between (EURO)50 billion and (EURO)60 billion. Only in a worst case scenario would Spain need to use all (EURO)100 billion, the agency said in a report.

Original Article
Source: huffington post
Author: HAROLD HECKLE and ALAN CLENDENNING

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