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| Eurozone crisis live: Spanish crisis deepens as recession confirmed | Eurozone crisis live: Spanish crisis deepens as recession confirmed |
| (40 minutes later) | |
| 11.02am: After a steady start to the trading week, some European stock markets have fallen back this morning. Confirmation of Spain's recession, and the news that eurozone inflation was higher than expected last month, have combined to push shares lower. | |
| Here's a round-up: | |
| UK FTSE 100: -0.54%, down 31 points at 5745 Spanish IBEX: -0.61%, down 43 points at 7102 Italian FTSE MIB: -0.57%, down 84 points at 14694 French CAC: -0.7%, down 23 points at 3242 German DAX: +0.1%, up 6 points at 6807 | |
| And some comment from Yusuf Heusen, sales trader at IG Index: | |
| Once again, the Spanish ulcer is providing cause for concern; anti-austerity protests took place over the weekend, and this morning we have had news confirming that Spain slipped back into recession in the first quarter of 2012. In addition, S&P has downgraded 11 of Spain's largest banks, mirroring its move last week on the national sovereign debt rating. | |
| 10.38am: Guillaume Menuet, economist at Citi, has predicted that the Spanish people must suffer deeper austerity before the country returns to growth: | 10.38am: Guillaume Menuet, economist at Citi, has predicted that the Spanish people must suffer deeper austerity before the country returns to growth: |
| Menuet told Reuters: | Menuet told Reuters: |
| Spain's still very much recession and we think that this isn't going to improve soon. It's likely they'll have to create more fiscal tightening in order to catch up if they wish to avoid going in to plan, and that's going to be counterproductive. | Spain's still very much recession and we think that this isn't going to improve soon. It's likely they'll have to create more fiscal tightening in order to catch up if they wish to avoid going in to plan, and that's going to be counterproductive. |
| Last Friday, Madrid published a new economic stability plan that predicted that GDP would shrink by 1.7% in 2012, followed by 0.2% growth in 2013. | Last Friday, Madrid published a new economic stability plan that predicted that GDP would shrink by 1.7% in 2012, followed by 0.2% growth in 2013. |
| That's more optimistic than the latest IMF forecasts -- for Spanish GDP to shrink by 1.8% this year, and only grow by 0.1% next year. | That's more optimistic than the latest IMF forecasts -- for Spanish GDP to shrink by 1.8% this year, and only grow by 0.1% next year. |
| 10.22am: More euro gloom -- inflation across the eurozone came in at 2.6% this month, according to data just released by Eurostat. | 10.22am: More euro gloom -- inflation across the eurozone came in at 2.6% this month, according to data just released by Eurostat. |
| That's a slight fall on March's 2.7%, but higher than the 2.5% predicted by economists. Higher inflation means there is less chance of the European Central Bank cutting interest rates again soon (the ECB meets this week). | That's a slight fall on March's 2.7%, but higher than the 2.5% predicted by economists. Higher inflation means there is less chance of the European Central Bank cutting interest rates again soon (the ECB meets this week). |
| Howard Archer of IHS Global Insight commented that high oil prices continue to drive up the cost of living, and predicted that the ECB will leave borrowing costs unchanged: | Howard Archer of IHS Global Insight commented that high oil prices continue to drive up the cost of living, and predicted that the ECB will leave borrowing costs unchanged: |
| The ECB seems generally reluctant to take Eurozone interest rates any lower given current and likely continuing sticky consumer price inflation, and significant concerns among some of the bank's governing council members about the longer-term inflationary impact of the massive liquidity that the ECB has provided to banks. | The ECB seems generally reluctant to take Eurozone interest rates any lower given current and likely continuing sticky consumer price inflation, and significant concerns among some of the bank's governing council members about the longer-term inflationary impact of the massive liquidity that the ECB has provided to banks. |
| 10.05am: Over in Greece, some alarming consumer spending data has just been released. Retail sales fell by 13.0% in February, in volume terms, compared with the previous year. | 10.05am: Over in Greece, some alarming consumer spending data has just been released. Retail sales fell by 13.0% in February, in volume terms, compared with the previous year. |
| That's worse than the 10.6% fall recorded in January, indicating that the pace of decline is actually accelerating as Greece's long recession continues. | That's worse than the 10.6% fall recorded in January, indicating that the pace of decline is actually accelerating as Greece's long recession continues. |
| 9.54am: Last weekend's protests against Spanish austerity showed that prime minister Mariano Rajoy has become a clear target for protesters, just six months after winning the last general election by a landslide. | 9.54am: Last weekend's protests against Spanish austerity showed that prime minister Mariano Rajoy has become a clear target for protesters, just six months after winning the last general election by a landslide. |
| This photo was taken in Bilbao yesterday, where thousands of people attended an anti-austerity rally. | This photo was taken in Bilbao yesterday, where thousands of people attended an anti-austerity rally. |
| The caption reads "With the salaries of King Juan Carlos and Rajoy, medicines could be paid for". That's a reference to the recent decision to scrap free medicine for pensioners (under the new plan, they must pay 10% of the cost). | The caption reads "With the salaries of King Juan Carlos and Rajoy, medicines could be paid for". That's a reference to the recent decision to scrap free medicine for pensioners (under the new plan, they must pay 10% of the cost). |
| Rajoy remained tight-lipped over the details of his austerity plans during last year's election compaign. That was understandable – there's little to be gained electorally by promising to slash benefits and hike taxes, but Rajoy may be reaping the consequences now (support for his People's Party has fallen by 8 percentage points in the last month). | Rajoy remained tight-lipped over the details of his austerity plans during last year's election compaign. That was understandable – there's little to be gained electorally by promising to slash benefits and hike taxes, but Rajoy may be reaping the consequences now (support for his People's Party has fallen by 8 percentage points in the last month). |
| You could also argue, though, that Rajoy is the victim of Brussels' intransigence. As the Financial Times put it: | You could also argue, though, that Rajoy is the victim of Brussels' intransigence. As the Financial Times put it: |
| The truth is, Mr Rajoy finds himself in an impossible situation. For all the talk of European solidarity, the EU has insisted that his deficit-reduction plan should proceed at an excessive pace. This was bound to trigger a popular backlash. | The truth is, Mr Rajoy finds himself in an impossible situation. For all the talk of European solidarity, the EU has insisted that his deficit-reduction plan should proceed at an excessive pace. This was bound to trigger a popular backlash. |
| 9.30am: Spain's return to recesssion throws the spotlight on the dire state of the Spanish economy. The unemployment rate hit a new record high of 24.4% last Friday, its property bubble has burst, and its banks may need a €120bn bailout. | 9.30am: Spain's return to recesssion throws the spotlight on the dire state of the Spanish economy. The unemployment rate hit a new record high of 24.4% last Friday, its property bubble has burst, and its banks may need a €120bn bailout. |
| Louise Cooper of BGC Partners has warned this morning that Spain is "close to imploding", under the impact of austerity and its real estate crisis. It could be Ireland all over again, only worse. After all, the Irish government has injected €64bn into its banking sector over the last few years, and Dublin at least had the advantage of "a reformed and pro business economy", she argues. | Louise Cooper of BGC Partners has warned this morning that Spain is "close to imploding", under the impact of austerity and its real estate crisis. It could be Ireland all over again, only worse. After all, the Irish government has injected €64bn into its banking sector over the last few years, and Dublin at least had the advantage of "a reformed and pro business economy", she argues. |
| Cooper writes: | Cooper writes: |
| According to the World Bank, the Irish economy was worth US$206bn in 2010 and Spain's economy US$1407bn - thus the economy of Spain is seven times that of Ireland (which makes sense given that Spain is home to 47 million people and Ireland home to about 4.5 million). So assuming that Spain's property bubble and bust is equivalent to Ireland's (and there are many reasons why it may be smaller or larger) then the equivalent cost of bailing out Spanish banks for a comparable property bust could be (I stress the could) be seven times €64bn, which equals €448bn! | According to the World Bank, the Irish economy was worth US$206bn in 2010 and Spain's economy US$1407bn - thus the economy of Spain is seven times that of Ireland (which makes sense given that Spain is home to 47 million people and Ireland home to about 4.5 million). So assuming that Spain's property bubble and bust is equivalent to Ireland's (and there are many reasons why it may be smaller or larger) then the equivalent cost of bailing out Spanish banks for a comparable property bust could be (I stress the could) be seven times €64bn, which equals €448bn! |
| This is an extraordinarily large number and is the reason why so many Spanish bankers and politicians are so reticent to confront the scale of the problem....Once the size of the disaster has been glimpsed, it is difficult to go back and pretend it does not exist. | This is an extraordinarily large number and is the reason why so many Spanish bankers and politicians are so reticent to confront the scale of the problem....Once the size of the disaster has been glimpsed, it is difficult to go back and pretend it does not exist. |
| 9.02am: We'd love to hear the views of Spain-based readers about the news today that the country is back in recession. | 9.02am: We'd love to hear the views of Spain-based readers about the news today that the country is back in recession. |
| Here are a couple of early contributions, from the comments below: | Here are a couple of early contributions, from the comments below: |
| Yellowsnow argues that Spain never really left recession: | Yellowsnow argues that Spain never really left recession: |
| Anyone who actually lives here would know that there has been no second dip. We are still as much in the shit as when all this started to hit back in 2009. I've never seen so many business closed or "local en alquier"(office to let) signs in the high streets | Anyone who actually lives here would know that there has been no second dip. We are still as much in the shit as when all this started to hit back in 2009. I've never seen so many business closed or "local en alquier"(office to let) signs in the high streets |
| . | . |
| EastEndGeordie, who lived through the UK recessions of the 1980s and 1990s, suggests some Spanish workers have not yet realised the severity of the situation: | EastEndGeordie, who lived through the UK recessions of the 1980s and 1990s, suggests some Spanish workers have not yet realised the severity of the situation: |
| I currently live and work in Spain and it feels very odd. It doesn't feel like a country in recession with 25% unemployment. I remember the UK recessions of the 80s and 90s and they felt a lot worse. | I currently live and work in Spain and it feels very odd. It doesn't feel like a country in recession with 25% unemployment. I remember the UK recessions of the 80s and 90s and they felt a lot worse. |
| I don't know if the Spanish are in denial. The Spaniards I work with still enjoy the 2 hour lunches, 2 coffee breaks and great social lives. The shops are full as are the bars and cafes. The Spanish are not very productive and they don't seem to care. I have told my colleagues what recessions usually feel like and they look horrified | I don't know if the Spanish are in denial. The Spaniards I work with still enjoy the 2 hour lunches, 2 coffee breaks and great social lives. The shops are full as are the bars and cafes. The Spanish are not very productive and they don't seem to care. I have told my colleagues what recessions usually feel like and they look horrified |
| It won't hit home until a large bank goes bust or one of the overspending regions goes cap in hand to Madrid, until then, the Spanish will not worry as it is only teenagers and young people who are out of work and most of the middle aged, middle class workers don't care. | It won't hit home until a large bank goes bust or one of the overspending regions goes cap in hand to Madrid, until then, the Spanish will not worry as it is only teenagers and young people who are out of work and most of the middle aged, middle class workers don't care. |
| 8.43am: Even before Spain's double-dip recession was confirmed (at 8am BST today), prime minister Mariano Rajoy was insisting that his government would not relax the pace of its austerity drive. | 8.43am: Even before Spain's double-dip recession was confirmed (at 8am BST today), prime minister Mariano Rajoy was insisting that his government would not relax the pace of its austerity drive. |
| As tens of thousands of Spanish people took to the streets on Sunday, Rajoy was telling a gathering of his conservative People's Party that there was no alternative to his plans. He said: | As tens of thousands of Spanish people took to the streets on Sunday, Rajoy was telling a gathering of his conservative People's Party that there was no alternative to his plans. He said: |
| We are implementing a series of reforms that are more positive, necessary and required than ever.....Spain needs deep structural change, not makeup. | We are implementing a series of reforms that are more positive, necessary and required than ever.....Spain needs deep structural change, not makeup. |
| Spain is aiming to cut its deficit to 5.3% of GDP this year -- a tougher target than the 5.8% which Rajoy initially felt was achievable, but less onorous than the 4.4% target which Brussels originally set. | Spain is aiming to cut its deficit to 5.3% of GDP this year -- a tougher target than the 5.8% which Rajoy initially felt was achievable, but less onorous than the 4.4% target which Brussels originally set. |
| 8.30am: As regular reader meljomur points out in the comments below, Britain also slipped back into a double-dip recession last week. | 8.30am: As regular reader meljomur points out in the comments below, Britain also slipped back into a double-dip recession last week. |
| By my reckoning, there are now eight eurozone countries in recession, and eleven in the EUropean Union as a whole. | By my reckoning, there are now eight eurozone countries in recession, and eleven in the EUropean Union as a whole. |
| Apart from Spain, the other seven are Belgium, Ireland, Italy, the Netherlands, Portugal, Greece and Slovenia. | Apart from Spain, the other seven are Belgium, Ireland, Italy, the Netherlands, Portugal, Greece and Slovenia. |
| Looking outside the eurozone, but within the EU, we can include the UK, Denmark and the Czech Republic. | Looking outside the eurozone, but within the EU, we can include the UK, Denmark and the Czech Republic. |
| Spain and the UK are among the first countries to report data for the first three months of 2012. So it's possible that more countries could join the list in the weeks ahead (or that some of those in recession might climb out again). | Spain and the UK are among the first countries to report data for the first three months of 2012. So it's possible that more countries could join the list in the weeks ahead (or that some of those in recession might climb out again). |
| 8.20am: The news of Spain's recession (see 8.05am) has long been expected. This graph shows how it only managed weak economic growth through 2010 and most of 2011, before beginning to contract last autumn. | 8.20am: The news of Spain's recession (see 8.05am) has long been expected. This graph shows how it only managed weak economic growth through 2010 and most of 2011, before beginning to contract last autumn. |
| The red bar charts show quarterly GDP changes, while the blue line tracks the year-on-year change. | The red bar charts show quarterly GDP changes, while the blue line tracks the year-on-year change. |
| The data shows that Spain's recovery from the last recession was rather weak, even before the eurozone crisis struck. | The data shows that Spain's recovery from the last recession was rather weak, even before the eurozone crisis struck. |
| 8.05am: It's official - Spain has suffered a double-dip recession. | 8.05am: It's official - Spain has suffered a double-dip recession. |
| The Instituto Nacional de Estadistica has announced that the Spanish economy shrank by 0.3% in the first three months of 2012. That follows a 0.3% contraction in the final three months of 2011. | The Instituto Nacional de Estadistica has announced that the Spanish economy shrank by 0.3% in the first three months of 2012. That follows a 0.3% contraction in the final three months of 2011. |
| That puts Spain back into recession for the first time since it returned to growth at the start of 2010. The 0.3% contraction is actually slightly better than analysts had forecast. | That puts Spain back into recession for the first time since it returned to growth at the start of 2010. The 0.3% contraction is actually slightly better than analysts had forecast. |
| On an annual basis, Spain shrank by 0.4% in the last quarter. | On an annual basis, Spain shrank by 0.4% in the last quarter. |
| The full details are here on the INE website (pdf, in Spanish). | The full details are here on the INE website (pdf, in Spanish). |
| 7.58am: With impeccable timing, Standard & Poor's just announced that it has taken 'negative actions' on 16 Spanish banks, following last Friday's two-notch rating downgrade. | 7.58am: With impeccable timing, Standard & Poor's just announced that it has taken 'negative actions' on 16 Spanish banks, following last Friday's two-notch rating downgrade. |
| Details here. | Details here. |
| 7.50am: Good morning, and welcome to our rolling coverage of the eurozone debt crisis. | 7.50am: Good morning, and welcome to our rolling coverage of the eurozone debt crisis. |
| We're focusing on Spain this morning. The latest Spanish GDP data will be released in the next few minutes, and it is certain to confirm that Spain has fallen back into recession. | We're focusing on Spain this morning. The latest Spanish GDP data will be released in the next few minutes, and it is certain to confirm that Spain has fallen back into recession. |
| The data (due at 9am CEST, or 8am BST) will heighten the pressure on the Madrid government, following last Friday's credit rating downgrade. Yesterday, unions organised marches in cities across Spain in protest at the government's economic plans. | The data (due at 9am CEST, or 8am BST) will heighten the pressure on the Madrid government, following last Friday's credit rating downgrade. Yesterday, unions organised marches in cities across Spain in protest at the government's economic plans. |
| Elsewhere today: political tension is rising in France and Greece ahead of this weekend's elections. François Hollande launched a message of defiance against Angela Merkel over the eurozone fiscal pact yesterday, leaving France's likely next president on a collision course with Germany's chancellor. | Elsewhere today: political tension is rising in France and Greece ahead of this weekend's elections. François Hollande launched a message of defiance against Angela Merkel over the eurozone fiscal pact yesterday, leaving France's likely next president on a collision course with Germany's chancellor. |