Spotlight on Slovenia as Debt Pressures Mount

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Inquiring minds are watching economic activity in Slovenia following an official denial regarding bailout possibilities. For denial details, please see Slovenia Rules Out Bailout; Translation: “Slovenia Bailout Coming Right Up”

Slovenia Unemployment and Youth Unemployment

Slovenia Unemployment Rate data by YCharts

Debt Pressures Mount

Bloomberg reports Slovenia Set to Test Debt Appetite as Financing Pressure Mounts.

Slovenia’s government failed to raise 100 million euros ($ 131 million) at a debt sale this week. Now it’s shooting for five times that amount next week.

With bond yields approaching levels that prompted bailouts of other euro nations, the government will offer 500 million euros of 18-month Treasury bills on April 17. The International Monetary Fund estimates Slovenia will need to borrow about 3 billion euros this year to repay maturing debt, aid banks and finance the budget.

The debt sale will test the willingness of investors abroad to finance Slovenia’s economy as a banking crisis strains the budget, government bonds plunge and soaring default risk threatens to make the country the euro region’s sixth bailout recipient after Cyprus last month. The largest local lenders are state owned and are struggling with rising bad debt.

“Unless we see strong non-resident participation, this will be an orchestrated Pyrrhic victory, increasing pressure on Slovenia and thereby raising its chances to lose the international market access,” Andraz Grahek, a partner at Capital Genetics in Ljubljana, said by phone yesterday. “This would expedite an application for some kind of support.”

Slovenia, whose 35 billion-euro economy is the fourth smallest in the euro area, fell into the crossfire after European creditors and the IMF forced losses on bank depositors in a 10 billion-euro aid package for Cyprus.

The cost of protecting Slovenian debt against non-payment using credit-default swaps rose to a six-month high of 370 points yesterday, according to data compiled by Bloomberg.

The yield on Slovenia’s dollar-denominated benchmark bond maturing in 2022 is hovering close to record levels after the Finance Ministry missed its target in this week’s auction of Treasury bills by almost half as borrowing costs rose. The 2022 bond’s yield stood at 6.17 percent yesterday, approaching the record 6.38 percent reached on March 27.

While Slovenia is less reliant on banking than the Cypriot economy, default risk jumped after the Alpine country missed its target at the April 9 debt offering, reigniting concern it may follow Greece, Ireland, Portugal, Spain and Cyprus in seeking an international bailout.

The situation is “serious” and it’s up to the government to “give very clear signals” to avoid a bailout, Banka Slovenije Governor Marko Kranjec, who’s also a member of the European Central Bank’s Governing Council, said yesterday in Dublin, according to Market News International.

As I said, a bailout is on the way. Only the timing and details are in question.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

Spotlight on Slovenia as Debt Pressures Mount

America loves debt on 02-09-2013 RT News

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America loves debt on 02-09-2013 RT News

Italian Bank Holdings Of Italian Debt Rise To All Time High

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Wondering why the Italian bond market has been stable and “improving” in recent months, with yields relentlessly dropping as a mysterious bidder keeps waving it all in despite the complete political void in the government and what may be months of uncertainty for the country, and despite both PIMCO and BlackRock recently announcing they are taking a pass on the blue light special offered by BTPs? Simple. As the Bank of Italy reported earlier today, total holdings of Italian bonds by Italian banks hit an all time record of €351.6 billion in February.

Why are local banks loaded to the gills in the very security that may and will blow up their balance sheets when the ECB loses control of the European sovereign risk scene as it tends to do every year? Because courtesy of ECB generosity, Italian debt continues to be “cash good collateral” with the ECB, and as a result Italian banks can’t wait to pledge and repo it with Mario Draghi in exchange for virtually full cash allottment. In other words, the more debt the Italian Tesoro issues, the more fungible cash the Italian banks have to spend on such things as padding up their cap ratios and making their balance sheets appear like medieval (any refernce to Feudal Europe is purely accidental) fortresses.

Source: Reuters and Bank of Italy

Zero Hedge

Italian Bank Holdings Of Italian Debt Rise To All Time High

Iran Leader Ahmadinejad Interview on RT - Crisis, Debt, Collapse

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Iran Leader Ahmadinejad Interview on RT - Crisis, Debt, Collapse

The Money Trap How Banks Control the World Through Debt Documentary sa prevodom

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The Money Trap How Banks Control the World Through Debt Documentary sa prevodom

The Money Trap How Banks Control the World Through Debt Documentary sa prevodom

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The Money Trap How Banks Control the World Through Debt Documentary sa prevodom

The Money Trap How Banks Control the World Through Debt Documentary sa prevodom

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The Money Trap How Banks Control the World Through Debt Documentary sa prevodom

The Money Trap How Banks Control the World Through Debt Documentary sa prevodom

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The Money Trap How Banks Control the World Through Debt Documentary sa prevodom

[47] Prop 37 Fraud, Honor Vets: End War, OWS Absolves Debt

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[47] Prop 37 Fraud, Honor Vets: End War, OWS Absolves Debt

Spanish Debt Grows by €146 Billion, Largest Ever Recorded; Debt-to-GDP Highest Since 1910

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Proof there is no rebalancing in Europe is easy to find. For example, El Pais reports Spanish Debt Grows by €146 Billion.

What follows is a Mish-modified translation of the above Google-translation.

Key Points

• The public debt exceeded €882 billion at the end of 2012
• Debt Grew by €146 Billion in one year
• The increase in the first year of Prime Minister Mariano Rajoy is the largest ever recorded
• Debt-to-GDP is highest since 1910 
• Interest expense is at record high

The Government and the Bank of Spain debt figures are chilling. Government debt broke records in 2012. In the first year of the Government of Mariano Rajoy, debt skyrocketed to €882 billion, a one year increased of €146 Billion. Never in the economic history of Spain’s general government debt had increased so much in a single year. In five years, the debt has increased by €500 Billion, Debt is one of the major drags on the recovery of the Spanish economy.

Debt to GDP

The increase in public debt in 2012 is the equivalent of more than 14 percentage points of gross domestic product (GDP). €882 billion is equivalent to between 83.5% and 84% of GDP. The government had forecast a ratio of 79.8% for the 2012 budget last July, but has since revised the figure upwards. In relative terms, debt-to-GDP is at highest debt level in more than a century, particularly since 1910, when the Spanish debt stood at 88% of GDP, according to a historical IMF data.

Despite cuts and tax increases, the government of Mariano Rajoy has been unable to significantly reduce the gap in the public accounts.

Skyrocketing Public Debt

click on chart for sharper image

Outstanding liabilities will probably exceed 100% of GDP at the end of the year, and there are more than €100 billion of a government debt in the hands of others (Social Security mainly). The €882 billion figure also does not include about €60 billion of debt owed by public enterprises.

A Troubling Context

To Emilio Ontiveros, president of Financial Analysts International (AFI), “the main problem is the payment of interest, because it is the most unproductive spending item possible and occurs in a country that has had to cut back in other areas and need to recover growth.”

Spain had never spent so much money to pay only the interest on its debt: €38.66 billion. Financial expenses for the first time in history exceeded staff costs. “If you do not grow, you cannot pay your debts,” said Ontiveros, who argues that Spain should have requested the bond purchase program prepared by the Bank Central Bank (ECB) to cut interest paid on Spanish debt markets, a mechanism for which the Government should ask before rescue its European partners. “The corollary of this is that Spain needs urgent measures aimed to reduce this expense,” he says.

The average interest paid by the state’s debt is 4.1% with an average maturity of 6.1 years, but this level of return that investors demand may grow by the economic downturn. Despite the truce that markets have given Spain, political tensions rose in Spain and Italy .

Jose Carlos Diez, chief economist Intermoney, warns that Spain fails in all the variables that serve to stabilize the debt: its economy does not grow, it pays a high interest rate and has primary deficit (prior to payment of interest on the debt). “This dynamic eventually leads to non-payment,” he reflects.

End-Transalation

Note that last comment by Jose Carlos Diez, chief economist Intermoney “This dynamic eventually leads to non-payment.“

Indeed!

More on Non-Rebalancing

Many economists see signs of stabilization. I see signs of delusion in economists.

• Germany Rebounds but … France Economic Implosion Accelerates; Record Decrease in Service Employment in Italy
• German Trade Surplus Hits Five-Year High; Rebalancing the Wrong Way
• Illusions of Stabilization
• Europe à l’Hollandaise; Socialists Who Wrecked France, Demand the Same for Rest of Eurozone
• Wealthy French Eye Belgian Tax Breaks (Everyone in France Should Do the Same)

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

Spanish Debt Grows by €146 Billion, Largest Ever Recorded; Debt-to-GDP Highest Since 1910

Keiser Report: Wicked Debt Web (E404)

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